The first Making Tax Digital (MTD) for Income Tax (IT) quarterly deadline of 7 August 2026 has now passed, with more than 436,000 sole traders and landlords filing their first MTD quarterly update.
As expected with any new reporting regime, the first quarter has highlighted a number of common errors and areas where taxpayers may need to adjust their processes.
With the second quarter updates almost underway and the next deadline of 7 November 2026 approaching, here are some key lessons from Quarter 1 to help you prepare and avoid common mistakes.
Report gross income – not net
If you are a landlord, you should record the total rent received from your tenant as income. Don’t deduct letting agent fees or any other expenses from the rent before entering the income figure. Instead, record these costs separately as expenses.
For example, if your tenant pays £1,000 rent and your letting agent deducts a £100 fee, you should record £1,000 as rental income and £100 as a letting agent expense. This ensures your digital records accurately reflect both your income and expenditure.
Keep your bank feeds clean
If your accounting software is connected to a personal bank account, you may find yourself having to review and categorise a much larger number of transactions than necessary. Where possible, consider opening a dedicated business or property bank account. Keeping your personal and business or rental transactions separate can make your digital record-keeping much easier and reduce time spent reviewing transactions.
Keep your limited company separate
MTD for income tax applies to your personal sole trader and individual property income. If you operate through a registered limited company, the company’s income and expenses remain within the Corporation Tax regime and are not included in your personal MTD for Income Tax quarterly updates. It is therefore important to keep your personal and limited company records completely separate.
Make the most of the ‘soft landing’ period
HMRC has confirmed that late filing penalty points will not be issued during the 2026/27 tax year.
However, that doesn’t mean you can simply ignore a missed quarterly update. You still need to keep your digital records up to date and submit your quarterly updates. You must also have submitted your required quarterly updates before you can submit your tax return.
It’s also worth remembering that quarterly updates are cumulative. For example, your second update will cover the period from the start of the tax year to 5 October (for standard update periods), rather than only the three months since your first update. So, if you haven’t completed your first quarter yet, it’s worth getting your records up to date now rather than allowing the backlog to grow.
Our advice? Don’t put it off – get Quarter 1 up to date now.
Don’t leave it until the deadline
You don’t necessarily need to wait until deadline day to submit your quarterly update. If your records are complete and you’re confident that there are no further transactions to include for the relevant period, submitting your update as soon as you’re ready can help avoid a last-minute rush.
Getting into the habit of keeping your digital records up to date throughout the quarter will also make each submission much easier.
Need a hand with MTD?
If your digital records are looking a little messy after the first quarter – or if you’ve not got started yet – don’t panic.
We’re Xero Platinum partners, so if you’re using Xero, our team can help make sure everything is set up correctly, including:
Connecting your Xero software to HMRC
Checking your income and expense mapping
Setting up the appropriate bank feeds
Reviewing and setting up banking rules
Checking your records are ready for your next MTD submission
The earlier you get your records in order, the easier your next quarterly update should be.
Need help getting ready for the 7 November deadline? Get in touch with our team and we’ll be happy to help.