Your First Quarterly Update: A Step-by-Step Guide for Sole Traders

What is a Quarterly Update?

Under Making Tax Digital for Income Tax, sole traders and landlords must submit a summary of their income and expenses to HMRC four times a year, instead of once at the end of the year. This is known as a quarterly update. It is not a tax payment — it is simply a digital record of your business activity for that three-month period, sent directly from your MTD-compatible software to HMRC.

Each quarterly update includes your income and expense totals broken down into the categories HMRC requires. You are not sending individual invoices or receipts — just the summarised figures. Think of it as a regular financial check-in rather than a full tax return.

When is Your First Quarterly Update Due?

The MTD tax year runs from 6 April to 5 April, aligned with the standard UK tax year. Your first quarterly update covers the period from 6 April to 5 July, and the deadline to submit it is 7 August. After that, updates follow a similar pattern every three months throughout the year.

Step 1: Make Sure Your Software is Set Up

Before your first update is due, you need MTD-compatible software connected to your HMRC account. Log in to your Government Gateway, navigate to the MTD for Income Tax service, and follow the sign-up process. You will be asked to authorise your chosen software to communicate with HMRC on your behalf — most software platforms walk you through this process with clear on-screen instructions.

Set up your business details within the software, including your trading name, business type, and accounting basis (cash or accruals). If you are unsure which accounting basis applies to you, the cash basis is the default for most small sole traders and is generally simpler.

Step 2: Categorise Your Income and Expenses

HMRC requires your quarterly update to categorise income and expenses into prescribed headings. Common income categories include turnover and other business income. Expense categories include cost of goods, employee costs, premises costs, travel, advertising, professional fees, financial charges, and depreciation.

Your MTD software will present these categories for you. As you record each transaction throughout the quarter, assign it to the correct category. If your software connects to your bank account via a bank feed, many transactions will be categorised automatically based on rules you set up — saving you significant time.

Step 3: Review Your Records

Before submitting, spend a few minutes reviewing your income and expense figures for the quarter. Check that the totals look reasonable, that no major transactions are missing or miscategorised, and that your bank feed is up to date. Most MTD software provides a summary screen showing your quarterly totals before submission.

You do not need perfectly exact figures at the quarterly stage — you can correct errors in later submissions or in your End of Period Statement. But the more accurate your quarterly updates are, the less work you will have to do at year end.

Step 4: Submit Your Quarterly Update

Once you are happy with your figures, find the submission or "send to HMRC" option within your software. Confirm the details and submit. Your software will send the update directly to HMRC and you should receive a confirmation that it has been accepted. Keep this confirmation for your records.

The whole process — from review to submission — should take no more than 15 to 30 minutes for most sole traders with straightforward finances, once you have your records in order.

What Happens After You Submit?

After each quarterly submission, HMRC will provide an in-year tax estimate based on the figures you have sent. This is an estimate only — your actual tax bill will be calculated at the end of the year once you have submitted your End of Period Statement (EOPS) and final declaration.

The EOPS is submitted once per year after the tax year ends. It allows you to make adjustments — such as claiming allowances or correcting figures — before your tax bill is finalised. Under MTD, the Self Assessment final declaration replaces the traditional tax return for your self-employment income.

Common Mistakes to Avoid

• Missing the deadline. Set calendar reminders for all four submission dates well in advance.
• Leaving categorisation to the end. Record transactions as they happen, not in a rush before the deadline.
• Not connecting your bank feed. A bank feed saves hours of manual entry and reduces errors.
• Confusing quarterly updates with tax payments. Submitting does not mean paying — payments are still due on the normal Self Assessment schedule.