What This Guide Actually Does

Most guides about MTD quarterly updates tell you what counts as income or an allowable expense. This one does something different. It shows you the mechanical steps - how to take a pile of bank statements and receipts and turn them into the specific numbers that go into your quarterly update. Line by line, with real figures. If you have been staring at your records wondering where to start, this is for you.

The Shape of a Quarterly Update

Before you touch a single receipt, it helps to understand what you are actually building toward. A quarterly update asks for two things:

HMRC does not tax your income directly. It taxes your profit - income minus allowable expenses. You are not submitting a final tax bill with each quarterly update. You are giving HMRC an estimate of your profit so far this tax year. The final reckoning comes later, at your final declaration.

If you are unsure which income types belong in a quarterly update at all, read What Is Qualifying Income for MTD? first, then come back here.

Step 1: List Every Payment That Came In

Start with your bank statement for the quarter. Go through every credit entry - every amount that landed in your account - and ask: did this come from my business activity or my rental property?

Write them all down. At this stage, do not filter anything out. Just list them with the date and amount.

Example for a sole trader (freelance photographer) covering April to June 2026:

Total credits on the statement: £5,900

Step 2: Remove Anything That Is Not Business Income

Not every credit is taxable business income. Common items to strip out:

After removing the HMRC refund (£320) and the personal transfer (£500), the gross business income for the quarter is:

£5,900 - £320 - £500 = £5,080

This £5,080 is the figure that goes into the income field of the quarterly update.

Note: If you also received cash payments that never hit your bank account, you still need to include them. A cash payment from a client is income even if you spent it before it reached your account. Keep a simple cash log alongside your bank records.

Step 3: List Every Business Expense

Now do the same for outgoings. Go through every debit on your bank statement and ask: was this spent wholly for my business?

Continuing the example, the photographer's business expenses for the quarter:

Total expenses: £1,186.80

If you are unsure whether a specific cost counts, see Is It a Business Expense? or Self-Employed Business Expenses in MTD for a fuller breakdown.

Handling Mixed-Use Costs: The Calculation

Some costs are part business, part personal. You cannot claim the full amount - only the business proportion. Here is how to work that out.

Home Office (Fixed Rate Method)

HMRC allows a flat-rate claim for working from home, calculated per month based on hours worked at home. For the 2026-27 tax year, the rates are:

If the photographer works at home for around 90 hours per month, that is £18 per month. Over three months: £18 x 3 = £54.

Alternatively, if you use a room exclusively for business, you can claim based on actual costs - a proportion of rent, heating, electricity, and so on. That calculation is more accurate but more complex. The flat rate is simpler and still valid.

In the example above, the £90 home office figure uses a slightly different approach (perhaps actual costs calculated at a 15% room proportion of quarterly bills totalling £600). Either method is acceptable - but pick one and stick to it.

Mileage

If you use your personal car for business, you cannot claim petrol and car costs directly. You use the HMRC simplified mileage rate instead.

For the first 10,000 business miles in a tax year, the rate is 45p per mile.

The photographer drove 284 business miles in the quarter:

284 x £0.45 = £127.80

Keep a mileage log showing the date, start point, destination, purpose, and miles for each trip. A simple spreadsheet works fine. See Mileage Allowances for MTD for more detail on how this works in practice.

Phone and Broadband

If you use one phone for business and personal calls, you need to estimate the business proportion. If roughly 60% of your usage is business, claim 60% of the bill.

Example: monthly bill £45, 60% business use = £27 per month x 3 months = £81 for the quarter.

Document your reasoning. A simple note saying "estimated 60% business use based on call log review" is enough. See Mixed-Use Expenses and MTD for more examples.

Step 4: Calculate Your Quarterly Profit

Now bring the two figures together:

This is the profit figure HMRC uses to estimate your tax position. It is not your final tax bill - that comes after your final declaration at the end of the tax year, when you also add in other income sources, personal allowances, and any adjustments.

Warning: Do not subtract your own wages or drawings from the profit figure. As a sole trader, what you pay yourself is not a business expense - your profit is your income. Only actual business costs reduce your profit.

Landlords: The Same Process, Different Line Items

The mechanics are identical for property income, but the income and expense categories look different.

Rental Income

Include all rent received during the quarter. If a tenant pays monthly, that is three payments. If a tenant pays quarterly in advance, the full amount counts in the quarter you receive it - not spread across future quarters.

Example for a landlord with one rental property, April to June 2026:

Gross rental income for the quarter: £2,850

Do not include the tenant deposit in this figure. A deposit is not income - you still owe it back to the tenant.

Allowable Property Expenses

Common landlord expenses for the same quarter:

Total expenses: £1,228

Net rental profit for the quarter: £2,850 - £1,228 = £1,622

For a fuller list of what landlords can and cannot claim, see Landlord Expenses in MTD: 15 Things You're Probably Unsure About and What Counts as a Landlord Expense in Your Q1 MTD Quarterly Update.

Mortgage Interest: The One That Catches People Out

Landlords cannot claim the full mortgage payment as an expense. You can only claim a tax credit based on the interest portion - not the capital repayment portion. Your mortgage statement should split these out each month. If it does not, ask your lender.

In the example above, the monthly mortgage payment is £680. Of that, £140 is the capital repayment and £140 is interest. Over three months, the claimable interest element is £420. The capital repayment portion (£420 over the quarter) is not an expense for MTD purposes.

See Landlord Mortgage Interest in MTD for a detailed walkthrough.

Handling Timing Mismatches

One of the most common sources of confusion is receipts and invoices that do not line up neatly with the quarter.

Income: When Do You Include It?

For MTD purposes, you report income when you actually receive it - when the money hits your account. If a client owes you money for June work but pays in July, that income goes in Q2 (July to September), not Q1.

This is called the cash basis. It is the default for most sole traders and landlords under MTD, and it means you follow the money, not the invoice date.

If you are unsure whether a late payment belongs in this quarter or the next, read Late Receipts and Missing Invoices: Which Quarter Does It Go In?

Expenses: Same Rule

You claim an expense in the quarter you pay for it. If you bought insurance in March and it covers April to September, you claim it when you paid - or you can apportion it if the cost is significant. For small amounts, claiming it in full in the payment quarter is fine.

Note: If you receive a receipt or invoice after the quarterly deadline and you have already filed, you do not need to amend your update for small amounts. Include it in the next quarter. See Should You Amend Your MTD Quarterly Update After Filing? for guidance on when it is worth going back to correct something.

Reconciling Your Figures Before You File

Before you enter anything into your bridging software, do a quick sanity check. Compare your calculated income figure against your bank statement total for the quarter. Ask yourself:

If your figures do not add up cleanly, go back to the statement line by line. Most discrepancies come from either a missed income entry or a personal expense accidentally included. A full step-by-step reconciliation process is covered in Reconcile Your Bank Account to MTD: Before You File.

Entering the Numbers Into Your Software

Once you have your totals, entering them is straightforward. In AffordableMTD, you enter your income and expense figures for the quarter and the software sends them to HMRC in the correct format. You do not need to attach receipts or invoices to the submission itself - those stay with you as supporting records.

Keep your records for at least five years after the 31 January submission deadline for the relevant tax year. HMRC can ask to see them if they open a compliance check. See How Long to Keep MTD Records After Filing for the full retention rules.

A Note on the Trading Allowance

If your gross income for the whole tax year is £1,000 or less, you may be able to use the trading allowance instead of calculating actual expenses. This replaces all your expense deductions with a flat £1,000 allowance. You cannot use both - it is one or the other. For most people with income above £1,000, calculating actual expenses gives a more accurate and usually lower profit figure. See Trading Allowance for Sole Traders: MTD Q1 Explained.

Summary: The Calculation in Five Steps

  1. List every payment received in the quarter from your business or property.
  2. Remove non-business credits (refunds, personal transfers, deposits).
  3. List every business expense paid in the quarter, calculating proportions for mixed-use costs.
  4. Subtract total expenses from gross income to get your net profit.
  5. Cross-check against your bank statement before entering the figures into your software.

The numbers involved are often less complicated than people expect. The key is doing it systematically - starting with your bank statement, stripping out what does not belong, and documenting your reasoning for any estimates. If you do this at the end of each quarter rather than leaving it to the deadline, it takes far less time than you think.

Enter your quarterly figures in minutes

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