How to Calculate Your MTD Quarterly Update Income: Self-Employment and Rental

The Number You're Actually Looking For

You know you need to file an MTD quarterly update. You've sorted your expenses (mostly). But when it comes to the income figure - the actual number you type into the box - things get murky. Do you put in everything that hit your bank account? Just invoices you raised? What about a deposit that isn't really income? What about a payment that arrived in April but relates to March's work?

This guide walks through exactly how to calculate the income figure for your MTD quarterly update, whether you're self-employed, a landlord, or both. It also covers how to reconcile that figure back to your bank records, so you can file with confidence rather than guesswork.

What MTD Actually Wants: Net Profit, Not Gross Receipts

This is the most common misunderstanding. MTD quarterly updates do not ask for your gross income in isolation. They ask for your income and expenses separately - and from those, HMRC calculates your net profit (income minus allowable expenses) for the quarter.

So the "income" figure you enter is your gross business income for the period - every pound you received (or were entitled to receive) from your trade or property. Expenses are entered separately. You don't subtract expenses from income before entering the number.

If you're unsure about what counts as an allowable expense, the post on allowable expenses for MTD covers both self-employment and property in detail.

Step 1 - Define Your Accounting Basis

Before you calculate anything, you need to know which basis you're using. This determines when income counts as received.

Cash basis (most sole traders and landlords)

Under cash basis, income counts when money actually lands in your account - not when you raise an invoice or when rent becomes due. If a client pays you in July for work done in June, that payment is July income.

Cash basis is the default for most sole traders and for property income under MTD. If you haven't deliberately chosen otherwise, you're almost certainly on cash basis.

Accruals basis (traditional accounting)

Under accruals basis, income counts when it's earned - when you raise the invoice or when rent becomes due - regardless of when the cash arrives. This is less common for self-filers but relevant for some trades.

If you're not sure which basis applies to you, HMRC's guidance on basis periods explains the distinction, or check how you filed your last tax return.

Step 2 - Identify Every Income Source for the Quarter

Work through each category relevant to you.

Self-employment income

Include:

• Payments received from clients or customers during the quarter (cash basis)
• Cash sales, bank transfers, card payments, PayPal, Stripe, and any other method
• Payments in kind - if a client gives you goods or services instead of cash, the market value counts as income
• Tips and gratuities received directly through your trade
• Any grants received that relate to your business (for example, certain HMRC support scheme payments - check if these apply to your situation)

Do not include:

• VAT you've collected on behalf of HMRC (if you're VAT-registered, you report income net of VAT)
• Loans to your business
• Personal money you've transferred into your business account
• Employment income - PAYE income is reported separately and does not go into your MTD quarterly update at all. See the post on employment income and MTD for detail.

Rental income (property landlords)

Include:

• Rent received during the quarter
• Any service charges you collect from tenants (if they pass through you)
• Payments for utilities or other costs where tenants reimburse you directly

Do not include:

• Security deposits - these are not income unless they are forfeited (used to cover damage or unpaid rent). A deposit you're holding is a liability, not income.
• Advance rent that relates to a future period - under cash basis this is received when paid, so it does count in the period you receive it. This is one area where cash basis can feel counterintuitive.

For a worked example of how deposits and advance payments interact with quarterly figures, see Q2 rental income reconciliation: managing deposits and allowances.

Step 3 - Add Up the Income for the Quarter

Once you know what counts, the actual addition is straightforward. Here's a simple process:

1. Export or print your bank statement for the quarter (or open it on screen).
2. Go through every credit (money in) and mark each one as: business income, rental income, non-income (loan, transfer, deposit, refund), or unclear.
3. Total the business income credits. That's your gross self-employment income for the quarter.
4. Total the rental income credits separately. That's your gross property income for the quarter.
5. If you have both, they are reported as separate income streams in your MTD update - do not combine them into one figure.

The reason you keep them separate matters. Self-employment and property income are treated differently for tax purposes - different expense rules, different loss relief options. MTD reflects that by keeping them in separate boxes.

If you're both self-employed and a landlord and want a broader overview of how the two streams interact, multiple income sources and MTD is worth reading.

Step 4 - Reconcile Back to Your Bank Records

This is the step most people skip - and the step that causes problems later. Reconciliation simply means checking that the income figure you've calculated matches what actually happened in your bank account. It catches errors before you file.

A basic reconciliation check

Take three figures:

1. Opening bank balance - the balance at the start of the quarter.
2. Closing bank balance - the balance at the end of the quarter.
3. All business payments out - every expense that left the account during the quarter.

Then check:

Opening balance + gross income - business payments out = closing balance

If the numbers don't balance, something is missing or wrongly categorised. Common culprits:

• A personal payment made from the business account that you haven't excluded from expenses
• A transfer between two accounts counted twice
• A refund from a supplier that reduced expenses rather than being treated as income
• A deposit you've accidentally included as income

The post on reconciling your bank account to MTD before you file goes into this in more detail, including what to do when the numbers don't balance first time.

Step 5 - Handle Awkward Items Correctly

A few common situations catch people out.

Invoices raised but not yet paid (cash basis filers)

If you're on cash basis, unpaid invoices do not count as income until the cash arrives. You do not include them in your quarterly update. This applies even if the invoice was raised during the quarter.

Payments received in one quarter for work done in another

Under cash basis, this is simple: it's income in the quarter the money arrives. Don't try to match it back to the quarter the work happened.

Refunds you've issued to customers

A refund you pay back to a customer reduces your income for the quarter in which you pay it. If you received £2,000 from customers and refunded £200, your net income for the period is £1,800 - not £2,000 with £200 in expenses.

Income received in foreign currency

Convert to pounds sterling using the exchange rate on the date of receipt (or you can use HMRC's average monthly rates). Report the sterling equivalent. Keep a record of the conversion you used.

Trading allowance

If your gross self-employment income for the year is below £1,000, you may be able to use the trading allowance instead of claiming actual expenses. This is an all-or-nothing choice - you can't use it for some income and not others. See trading allowance for sole traders and MTD for the full picture.

What the Income Figure Is Not

It's worth being explicit about a few things the income box is not asking for:

• It is not your net profit. Net profit is calculated by HMRC after you've also submitted your expenses.
• It is not your bank balance at the end of the quarter.
• It is not the total of all invoices you raised (unless every single one was paid during the quarter).
• It is not your take-home pay or drawings.

If you're new to filing and want to check the full picture of what a quarterly update includes, what to include in your MTD quarterly update: the bare essentials gives a clear overview.

Keeping the Calculation Tidy Quarter by Quarter

One quarterly calculation is manageable. Four per year, year after year, gets messy if you don't build a habit around it.

A few things that help:

• Categorise income as it arrives, not all at once at quarter end. Even a five-minute weekly review prevents a pile-up.
• Keep a simple running log - a spreadsheet is fine - of income received each week. HMRC accepts spreadsheet records as part of your digital record-keeping, as explained in can you use spreadsheets for MTD?
• Reconcile monthly if possible, not just at the end of the quarter. Problems are much easier to fix when they're recent.
• Flag anything uncertain as you go - unusual payments, unclear items, possible deposits - rather than leaving them to resolve at filing time.

For a practical weekly system, Q2 record-keeping: a 15-minute-a-week system is a good starting point.

A Quick Check Before You File

Before you submit, run through this list:

1. Have you included all income received during the quarter - not just bank transfers, but PayPal, card payments, cash, and anything else?
2. Have you excluded deposits, loans, personal transfers, and VAT collected?
3. Have you kept self-employment income and rental income in separate figures?
4. Have you reconciled the figure back to your bank statement and the numbers balance?
5. If you received any income in a foreign currency, have you converted it to sterling?
6. If you issued any refunds, have you reduced income rather than adding them to expenses?

If the answer to all of those is yes, you're in good shape. If any of them flags a problem, sorting it now takes minutes. Sorting it after submission is possible but takes longer - see how to amend your MTD quarterly update after submission if you need to.

Summary

Calculating your MTD quarterly update income comes down to three things: knowing your accounting basis, identifying every qualifying receipt for the period, and checking the figure reconciles to your bank records. The income figure you enter is your gross receipts - not your net profit, not your invoices raised, and not your bank balance. Once you have that number right, the rest of the quarterly update follows naturally. Get into the habit of running the calculation monthly rather than leaving it all to the last few days before the deadline, and the process becomes much less stressful over time.