Your first Making Tax Digital quarterly update
A quarterly update is a cumulative year-to-date total of one business’s income and expenses, grouped into standard categories and sent from software HMRC has recognised about a month after the quarter ends — it is not a tax return, it does not work out what you owe, and a sole trader who also lets a flat sends two of them.
14 min read · 7 steps · 6 ways it goes wrong
What you need before you start
- A view on whether Making Tax Digital for Income Tax applies to you at all, and from which April. This turns on qualifying income, which is not what most people assume it is.
- A list of your businesses, not your bank accounts. Each trade is a business; all your UK property together is one property business; overseas property is another.
- Digital records of income and expenses for the period, with a date, an amount and a category on every row. A spreadsheet is a digital record.
- Software HMRC has recognised, connected to your HMRC account. Nothing on this site can send an update, and neither can a spreadsheet on its own.
Work out whether it applies to you, and from which April
It turns on qualifying income: gross income before expenses, from self-employment and from property, added together. Not profit. Not taxable income. It does not include employment income, pensions, dividends or savings interest.
A landlord whose rent is thirty-one thousand a year and whose mortgage interest, agent fees and repairs come to fourteen thousand has qualifying income of thirty-one thousand, not seventeen. That single misunderstanding is what puts people on the wrong side of a threshold, and it is the reason to check rather than assume.
It is also added across everything. A plumber with a modest trade who also lets a flat adds the two gross figures together, and the total can cross a threshold neither figure is near on its own.
The tool for this step: Making Tax Digital: Does It Apply to Me? — adds up qualifying income the way HMRC defines it, names the threshold that catches you and gives the first period and its deadline.
Count your businesses, because each one updates separately
This is the part that surprises people. A quarterly update covers one business. If you have two trades, that is two sets of updates. If you have a trade and a property business, that is two. All your UK lettings together count as one property business; overseas property is separate again.
So the question "how many updates a year do I send" has an answer of four times the number of businesses, and for a great many people that number is not four.
Choose standard or calendar quarters, once
The default periods follow the tax year and end on the fifth of the month. You can elect in your software for calendar quarters instead, which end on the last day of the month and are much easier to reconcile against a bank statement or a bookkeeping system that thinks in calendar months.
Note what the calendar election does not change: the fourth calendar quarter closes at the end of March, while the tax year runs on for a few more days into April. Rows dated in that short gap still belong to the tax year that is ending, and they have to be counted somewhere. Whatever you use should tell you which of those rows it has picked up and where it put them.
Keep the records in a shape that can be totalled
What an update needs from your records is a date, an amount, and a category for every row. That is all. A spreadsheet with those three columns is a digital record and is enough.
The categories are the standard headings for a trade or for property — turnover, cost of goods, car and van, wages, premises, repairs, office costs, advertising, interest, bank charges, bad debts, professional fees, depreciation, other, for a trade; rents, premiums, rates and insurance, repairs, loan interest, management fees, services, other, for property. Your own names do not have to match: "Diesel" maps onto car and van, "Xero subscription" onto office costs. What matters is that every row maps onto something, and that you decide where the odd ones go rather than letting them fall into a bucket.
The tool for this step: MTD Quarterly Update Builder — maps your own category names onto the standard headings, cuts the year into its four periods, and gives the cumulative year-to-date figure beside the standalone quarter with every unmatched row listed by name.
Total the period — cumulatively
An update carries the year to date, not the quarter standing alone. The second quarter’s update is the first quarter plus the second. The fourth quarter’s update is the whole year.
This is a better design than it first appears, because it means a mistake in an earlier quarter is corrected simply by the later update being right. You are not amending anything; you are restating the running total.
Produce both figures anyway. The standalone quarter is the one that tells you anything about the business — whether the summer was better than the spring — and the cumulative one is the one that gets sent.
Send it through recognised software
The update goes to HMRC through software that has been recognised for the purpose and is connected to your HMRC account. A spreadsheet cannot send it. Nothing on this site can send it. What you can do here is produce the figures the software asks for, as a workbook, and put them in.
Check the wording of the categories in whatever you file with against the headings you have used. HMRC’s own specification, the paper pages and every package word them slightly differently, and a category that does not exist in your software has to go somewhere.
Remember that the year still has to be finished off
Four updates do not make a tax return. After the tax year ends there is a Final Declaration, in which the accounting adjustments are made — capital allowances, private use, the accruals and prepayments — other income is added, reliefs are claimed, and the tax is actually calculated.
The updates are raw. They are not expected to be the final figures, and nothing in them calculates what you owe. That is worth telling anybody who panics at the first update showing a profit they do not recognise.
Where this usually goes wrong
6 things that actually happen, rather than a note asking you to be careful.
- Qualifying income read as profit. Qualifying income is gross, before a single cost comes off, and it is added across every trade and every property business. A landlord looking at their net rental profit, or a trader looking at the bottom of their profit and loss, will decide they are comfortably under a threshold when the gross figure is well over it. There is no penalty for checking and a substantial one for being in the regime without knowing it, and the figure is on a return you have already filed.
- One set of updates for two businesses. A sole trader who also lets a flat has two businesses and sends two sets of quarterly updates, with two sets of categories — the trade headings for one, the property headings for the other. Combining them into a single update is not a rounding error, it is the wrong return: property income and trading income are taxed differently and reported separately. If you are running one bookkeeping file for both, the very first thing to do is add a column that says which business a row belongs to.
- Sending the quarter when the software wanted the year to date. The update carries the cumulative figure. Send the standalone quarter into a field expecting year-to-date and the year is understated by everything before it; send year-to-date into a field expecting the quarter and Q4 reports the whole year as a single quarter. Both are silent errors — the figures are plausible and the submission is accepted. Produce both columns, look at which one your software’s field name is asking for, and check that Q2 cumulative is visibly larger than Q1.
- The gap at the start of April, under a calendar election. Electing for calendar quarters moves the period ends to the last day of the month. It does not move the tax year, which closes a few days later — the exact dates are in the dated box in step three. That leaves a short gap between the close of the fourth calendar quarter at the end of March and the end of the tax year, and rows dated in it have to be counted somewhere. Different software treats them differently. Whatever you use should flag them rather than absorbing them silently, and it is worth checking once, in the first year, exactly where they went.
- Category names that only exist in your head. A row categorised as "Stuff", "Misc" or "Amazon" maps onto nothing, and something has to happen to it. The dangerous outcome is not an error message, it is a default: the row lands in "other expenses" and stays there. Other expenses is a real heading, so nothing looks wrong, but it is also the heading most likely to attract a question. Every unmatched row should be listed by name and decided on, and the ones you decide on this quarter should become rules for the next.
- Treating the update as a tax bill. An update is income and expenses as recorded — no capital allowances, no private use adjustment, no accruals, no other income, no reliefs. The profit it appears to show is not your taxable profit and no tax is calculated from it. People see a large number in the first update and either panic or start setting money aside against an entirely fictional liability. The tax is worked out at the Final Declaration, which is also where the adjustments belong.
How long this should take
The first one is an afternoon, and almost none of that is the update itself — it is deciding whether you are in, which businesses you have, and what your own category names should map onto. After that each quarter is half an hour if the records are kept as you go, and a fortnight of misery if they are kept in a carrier bag. The whole design of Making Tax Digital is a bet that people will keep records as they go once there are four deadlines instead of one.
Frequently asked questions
How many updates will I actually send?
Four for each business, each year. A trade is a business; all your UK property together is one; overseas property is another. Two businesses means eight updates a year, plus one Final Declaration covering everything.
Can I file an update from a spreadsheet?
Not on its own. The figures can come from a spreadsheet, and this site will produce them as a workbook, but the submission has to be made by software HMRC has recognised and connected to your HMRC account.
What happens if I get a quarter wrong?
Because the figures are cumulative, the ordinary way to fix an earlier quarter is for the next update to carry the corrected running total. Check how your own software words this before you rely on it — packages differ in what they call an amendment and in what they let you resubmit.
Does this replace my Self Assessment return?
The Final Declaration after the tax year replaces it, not the quarterly updates. The updates are the raw income and expenses through the year; the Final Declaration is where the adjustments, the other income, the reliefs and the actual tax calculation happen.
The tools this uses
Each one described in its own words, read from its own page. Everything here runs in your browser unless it says otherwise.