How HMRC Making Tax Digital shapes small business CRM records

What to take away

A CRM does not submit a VAT return, but it can hold the fields VAT Notice 700/22 expects: customer, invoice number, supply date, description, net amount, VAT rate and VAT amount.
Data must stay digital from CRM to accounting software to HMRC. Retyping a figure breaks the link.
HMRC publishes a list of compatible software. Xero, QuickBooks, Sage and FreeAgent appear on it, and CRMs such as Capsule CRM connect to accounting packages through vendor integrations.
Making Tax Digital for Income Tax uses a £50,000 qualifying income threshold from April 2026, then £30,000 from April 2027 and £20,000 from April 2028.
VAT records must be kept for six years, with an audit trail so tax-relevant fields cannot be changed without a trace.

What a compliant CRM record must hold

VAT Notice 700/22 sets out the digital records a VAT-registered business must keep. Read as field rules, it becomes a data model for a small business CRM.

CRM VAT record fields

Customer name and address
Invoice or supply date
Description of goods or services
Net amount
VAT rate
VAT amount
VAT treatmentstandard, reduced, zero, exempt

Notice 700/22 requirement	CRM field or behaviour
Supplies made	Invoice number, customer name, supply date, description, net amount, VAT rate, VAT amount
Supplies received linked to customers	Supplier name, date, amount and VAT charged
Credit notes	Credit note reference, reason, and a link to the original invoice
Time of supply	A supply date field kept separate from the lead created date
VAT treatment	A rate field: standard, reduced, zero, exempt or outside scope

Missing fields push work into a spreadsheet later, usually by hand. Records also drift over time, which is why a regular CRM data cleaning routine keeps names, dates and amounts accurate before a return is prepared.

Retention runs to six years for VAT records. The notice points to a daily penalty of between £5 and £15 where digital record-keeping requirements are not met, so deletion policies need a review.

What counts as a digital link

A digital link is a transfer of data between software that does not involve manual retyping. HMRC allows spreadsheets inside the chain, provided they are linked digitally to the underlying data and to the submission software.

A CRM sending records to accounting software through an API or vendor connector, with no rekeying.
Automated CSV imports, with the file left unedited before import.
A shared key, such as an invoice number or customer ID, matching CRM and ledger entries.
Adjustments and corrections kept in the same chain, each carrying a short note.
Any screen-to-keyboard transfer treated as a break in the link.

Which tools carry the link, by name

The list of software compatible with Making Tax Digital for VAT names products HMRC has recognised for VAT submissions, including Xero, QuickBooks, Sage and FreeAgent. Most CRMs never appear there, because they do not submit returns.

CRM vendors publish connectors instead. Capsule CRM and HubSpot offer integrations with accounting packages such as Xero and QuickBooks Online, so invoice lines and tax rates can pass across without typing. Availability varies by plan, so confirm it against the vendor's current integration list.

Our walkthrough on integrating your CRM with Xero or QuickBooks covers field mapping and how to test the first export.

Making Tax Digital for Income Tax: thresholds and dates

Making Tax Digital for Income Tax for sole traders and landlords moves income and expense records into digital form. HMRC's step-by-step guidance sets out the sequence: sign up, choose software, keep digital records, send quarterly updates and make a final declaration.

Making Tax Digital for Income Tax

April 2026 £50,000
April 2027 £30,000
April 2028 £20,000

For a sole trader, a CRM covers the income side, with customer, invoice date and amount flowing into accounting software. Expenses such as mileage and materials stay in the accounting package. Quarterly updates are due by 7 August, 7 November, 7 February and 7 May, with a final declaration after the tax year ends.

Keeping CRM, accounting software and HMRC online services in step

A monthly routine keeps the chain intact and creates evidence that checks were made.

Match every CRM sales record to a ledger entry using the invoice number.
Clear exceptions in the same week, so unmatched items do not gather at quarter end.
Reconcile bank receipts against invoices before the VAT return is filed.
Review who holds HMRC online services authorisation and remove anyone who has left.
Save a period summary alongside the digital records.

Monthly CRM reconciliation routine

Run CRM sales report and export digitally
Import or sync into accounting software
Reconcile CRM totals to accounting totals
Check VAT rates and customer details match
Submit through MTD software and keep receipt

If part of the job still happens in a spreadsheet, CRM versus spreadsheet sets out where the manual route stops being worth the effort.

Before an HMRC compliance check, run a self-review. Confirm the audit trail, the retention period and the field list, and give each fix a named owner.

Common questions

Does a CRM have to be on the HMRC compatible software list?

No. That list covers software recognised for keeping digital records and submitting returns. A CRM normally connects to a listed accounting product through an integration.

Does Making Tax Digital for Income Tax apply to me?

If you are a sole trader or landlord with qualifying income above the threshold for the tax year, yes. The thresholds are £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028.

How long must CRM and VAT records be kept?

VAT records must be kept for six years. Where a CRM holds the sale detail behind a return, apply the same retention rule to those records.

What breaks a digital link?

Manual retyping between systems, an edited CSV import and figures copied from a PDF report into a spreadsheet all break it.