Making Tax Digital · Sole traders
Are payments on account changing under Making Tax Digital?
ONLY£15A MONTHQuarterly reporting does not mean quarterly Income Tax payments.
Quarterly reporting does not mean quarterly Income Tax payments. Payments on account continue to operate under their own rules. Understanding the difference helps you plan cash without mistaking a software estimate for a new demand from HMRC.
The existing instalment system remains separate
HMRC's payments-on-account guidance explains when two advance instalments are required. They are usually half the previous year's relevant liability, due on 31 January and 31 July, with exceptions including small liabilities and substantial collection at source.
A balancing payment settles any difference once the actual annual liability is known. The first instalment for another year can fall due alongside that balance.
A falling income may justify a reduction
You can use HMRC's process to apply to reduce payments on account when the expected liability is lower. Keep a sensible calculation. Reducing them too far can lead to interest on the shortfall; a quieter month alone may not justify a large annual reduction.
Quarterly information can improve the evidence behind an estimate, but consider seasonal income, other sources, reliefs and tax already deducted. A forecast of accounting profit is not the instalment calculation itself.
Worked example: a careful reduction
Suppose the previous relevant liability was £6,000, producing two £3,000 payments on account. A reviewed forecast suggests the next relevant liability will be £4,000. A reduction to £2,000 per instalment may be appropriate through HMRC's process.
If the actual amount later turns out to be £5,500, the shortfall needs settling and interest may apply. Keep reviewing the forecast rather than treating the reduction request as a final tax calculation.
Treat a tax estimate as a forecast
A bookkeeping profit is not necessarily your final taxable income, and an estimated liability is not always the amount still to pay. Employment income, pensions, savings, reliefs, tax already deducted and payments on account can all affect the final position.
An estimate is most useful when you understand its coverage. Check whether it uses year-to-date figures or projects a full year, whether all income sources are included and whether adjustments are still outstanding. A strong summer followed by a quiet winter should not automatically be projected as twelve identical months.
HMRC explains that estimates after quarterly updates can be incomplete when other income is missing or accounting periods do not align with the tax year. Read the estimate guidance within quarterly reporting.
Use a reviewed forecast to inform a cash reserve, then compare it with actual HMRC liabilities and payment dates. If you transfer money into a tax savings account, that transfer is not a business expense. If an estimate changes sharply, investigate the records and assumptions before assuming that your tax position itself has changed by the same amount.
Keep the reporting dates separate from payment dates
The standard first update for 2026/27 covers 6 April to 5 July 2026 and was due by 7 August 2026. The second covers 6 April to 5 October 2026 and is due by 7 November 2026. The third and fourth deadlines are 7 February 2027 and 7 May 2027. These are cumulative updates, not four isolated sets of three-month totals.
Calendar periods have different cut-offs and the same filing deadlines. Check the setting for each business rather than assuming the dates from a bank statement. HMRC lists both reporting calendars.
The annual return for 2026/27 is due by 31 January 2028. The earlier 2025/26 return normally remains due online by 31 January 2027. Keeping those years distinct avoids a common transition-year misunderstanding.
Payments on account, where required, follow their own January and July timetable. An update acknowledgement confirms a reporting event; it does not confirm that an outstanding tax bill has been paid. Check your actual HMRC account and payment obligations separately from the software's progress indicators.
Keep the evidence connected to the figures
Your digital record should explain the amount, date and nature of the transaction. Keep the invoice, receipt, statement or other evidence that supports it. A photograph can make a paper document easier to retain, but a folder of photographs alone does not create complete transaction records.
For sole traders, HMRC normally requires business records to be kept for at least five years after the relevant 31 January filing deadline. Keep them longer where the rules for a late return, enquiry or other circumstances require it. Check the record-retention guidance.
Make the records usable by your future self. Include a short explanation where a bank description is vague, retain the calculation behind a business-use split and make corrections traceable. For a missing receipt, try the supplier account, email confirmation or a replacement invoice before relying on incomplete evidence.
At review time, compare your records with the bank or payment account and investigate differences. Equal totals are useful, but two errors can cancel each other out. A sample of individual transactions can reveal a duplicated purchase or an omitted customer receipt that a totals-only check misses.
Keep a separate payment checklist
Record each payment date, tax year and amount actually paid. Check the HMRC statement as well as the software dashboard. Filing an update does not move money into a tax reserve or pay HMRC on your behalf.
Take the next step
Avona.app offers a self-service route from £15/month. Bring your records together, review the figures and choose a workflow that fits your business. For professional help, discuss the scope and total price of Avona Concierge, managed by chartered accountants, before choosing a service.