You need to create and store digital records of your self-employment and property income and expenses using Coconut.
You must also continue keeping records like you normally do for Self Assessment. For example, you still need to keep original records or supporting documents (or copies of them) that you have used to submit your tax return.
Before creating your digital records, you should check that you have followed all the steps in signing up including authorising Coconut
Records you need to keep digitally
You only need to create and store digital records of your self-employment and property income and expenses, such as:
self-employment income — including sales, takings and fees
self-employment expenses — including the cost of stock, travel costs, office costs and financial costs
property income — including rent, premiums for the grant of a lease, reverse premiums and inducements
property expenses — including rent, costs of repairs, maintenance or other services
When you create records of your income or expenses, you will need to record the:
amount
date when the income was received or expenses incurred
category — depending on your record-keeping requirements
Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment.
If you have more than one business
For each source of self-employment income you have, you will need to:
create separate digital records
send separate quarterly updates
For example, if you are an electrician as well as a driving instructor, you should create one set of digital records for each of your businesses.
You should create separate digital records for your UK and foreign property businesses, if you’re UK tax resident.
Your:
UK properties are treated as one ‘UK property business’
non-UK properties are treated as one ‘foreign property business’
Your share of any jointly let properties will form part of either your UK or foreign property business.
Records you can choose to keep digitally
There are some records you do not need to keep digitally but can choose to do so.
This can help you maintain a more up-to-date view of your tax affairs.
Other income sources
You do not need to create digital records for all other sources of income reported through Self Assessment, such as income from employment (PAYE), a partnership or dividends (including those from your own company).
Disallowable expenses
These are expenses that are not wholly for business use, so a portion of them cannot be claimed on your tax return.
If you currently keep a record of the disallowable portion of your expenses, then you should continue to do this by creating digital records of these amounts in your software.
For example, you have a mobile phone bill which totals £200. The bill is made up of:
£125 for business calls
£75 for personal calls (which is the disallowable portion of the expense)
If you choose to create a record of the disallowable portion, you will create a digital record of:
the full £200 expense
the £75 disallowable portion
Transactions that are part capital and part revenue
If you have a transaction which is part capital and part revenue, you can either:
record the full value of a transaction (including capital elements) — you should then make an adjustment before finalising your Income Tax position
create a digital record of just the revenue amount
For example, if you make a mortgage payment, you will need to create a digital record of either the interest or the full amount. If you create a record of the full amount, you will need to make an adjustment before you finalise your Income Tax position.
Specific record-keeping requirement
You can choose to create and categorise your digital records in a particular way if:
you jointly let property with another landlord
your turnover is below the VAT threshold
you are a retailer
You can also read more about what your digital records must include and how to create and store your records in the Digital record-keeping notice for Making Tax Digital for Income Tax.
If you are a landlord that jointly lets properties
You only need to create digital records that relate to your share of income and expenses from your jointly let properties.
To simplify your record keeping, you can choose to:
create less detailed digital records for the income and expenses from your jointly let properties
not include expenses which relate to jointly let properties in your quarterly updates — you will need to include this information when you finalise your Income Tax position after the end of the tax year and before you submit your tax return
For jointly let properties only, creating less detailed digital records means:
creating a single digital record for each category of property income that you receive in an update period
creating a single digital record for each category of property expense that you incur in a tax year
For example, a landlord with a jointly let property, could either:
create 3 digital records, showing £1,000 of rent they received each month
just create one digital record for the quarter, showing £3,000 of rent received
Simpler categorisation if your turnover is below the VAT threshold
You can choose to categorise your digital records in less detail if you have either of the following:
total UK property income of less than £90,000 before expenses (this also applies if you are a landlord that jointly lets a property)
total income from self-employment of less than £90,000 before expenses
If you have more than one income source, you can only use simpler categorisation for both income sources if your turnover is below the VAT threshold for each income source.
If you’re a sole trader, you only need to record whether a transaction is income or an expense.
If you’re a landlord and receive rental income from residential property, you need to categorise your expenses in more detail even if your turnover is below the threshold.
You must:
1. Record if a transaction is an income or an expense.
2. If it is an expense, record whether the expense is for residential finance costs.
If your turnover later goes above the VAT threshold
If your turnover goes above £90,000, you will need to categorise all digital records for that income source in full, including those:
fom the beginning of the current tax year
in the following tax year
If you do not categorise your records for that income source in full, you’ll not be able to submit your tax return.
If you’re unsure if your turnover will go above £90,000, you should categorise your digital records in full detail.
Correcting your digital records
You may need to correct a digital record, if you:
made a mistake when creating a digital record
forgot to record income you received, or expenses you incurred
To correct your records, you may need to change, delete or create a digital record. If you make the correction during the tax year, it will be included when you send your next quarterly update.
If you have already sent your fourth quarterly update, you can choose to make the correction by either:
correcting the digital record and resending your fourth quarterly update (this may be easier if you are a sole trader or landlord that keeps their own digital records)
adjusting the category total in Coconut and also reflecting it in your digital records (if you have an agent, they may make the correction in this way and ask you to update your records)
When to correct digital records
If you discover an error or omission in your digital records, you should correct it as soon as possible.
After making the correction, it will be included when you send your next quarterly update.
If you have already sent your fourth quarterly update, you will need to make any corrections before you finalise your Income Tax position.
How long you will need to store digital records
You will need to keep your digital records for at least 5 years after the 31 January submission deadline for a tax year. This is the same amount of time you need to keep records for Self Assessment.