Making Tax Digital · Sole traders
Quarterly MTD updates and the annual return: what each stage does
ONLY£15A MONTHQuarterly updates summarise business records during the year.
Quarterly updates summarise business records during the year. The annual return brings the relevant business figures together with adjustments, other income and personal tax information. Completing the first stage does not automatically complete the second.
What quarterly updates contain
Each relevant business sends the required cumulative income and expense summaries. These updates support the digital reporting process, but do not contain every personal tax item. HMRC does not require all annual accounting and tax adjustments before every quarterly update.
The annual stage then needs the relevant adjustments and the rest of the taxpayer's information. Depending on circumstances, that can include employment, pensions, savings, dividends, reliefs and tax already deducted. Prefilled information should be checked rather than assumed complete.
Use the current annual process
“Final Declaration” is a term often used to describe finalising the tax position, but HMRC's current guidance describes submitting the tax return. Follow the product and HMRC process for the actual tax year.
For 2026/27, the annual-return deadline is normally 31 January 2028. The 2025/26 return normally due online by 31 January 2027 remains a separate earlier-year task. Confirm annual coverage when choosing software or a professional service.
Worked example: a trade plus employment
A person submits quarterly updates for a sole trade but also earns employment income. The quarterly trade summary does not by itself establish the final personal tax calculation.
At the annual stage, the person checks the employment information, business adjustments, reliefs and tax already paid. Four accepted business updates are useful progress, but not proof that the annual return is complete.
Where this fits into Making Tax Digital
For 2026/27, the first mandatory phase generally covers individuals whose combined qualifying self-employment and property income was more than £50,000 in 2024/25, subject to exemptions. Qualifying income normally means income before expenses. It is a different figure from taxable profit. Check the qualifying-income rules.
Once within MTD, keep the required digital records and send quarterly summaries for each relevant business. The summaries are cumulative from the start of the reporting year. They do not contain your entire personal tax position, and sending one does not itself create a quarterly tax-payment demand.
HMRC does not require accounting or tax adjustments before each quarterly update. Those adjustments and the other information needed for the annual return still have to be completed at the appropriate stage. Keep a review list so a matter deferred until year end is not forgotten. Read HMRC's quarterly-update guidance.
Software can organise the information, but the business facts remain essential. Review the figures you approve rather than assuming that a successful import has also settled every tax question.
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.
A review that checks more than the total
Start with coverage: the correct person, business and period, plus all relevant accounts and cash records. Then look at completeness. A feed can be connected today while still missing an earlier week. Confirm the earliest and latest transactions against the source.
Next, inspect unusual items. Large transfers, loan receipts, refunds, net settlements and private purchases often need more context than a bank description provides. Check for duplicate imports where a statement overlaps a live feed. An automatic warning is useful evidence to investigate, not proof that the entry must be removed.
Finally, review category totals. A category unexpectedly showing zero, a large increase or a negative amount deserves an explanation. You do not have to make every annual tax adjustment at this stage, but you should understand the records behind the summary you approve.
HMRC explains what quarterly updates contain. Keep the approved version and the resulting acknowledgement together. If something later changes, correct the source record and use the software's supported update process so you can explain which figures are current.
Maintain an annual information list
Keep a record of other income, reliefs, pension contributions and unusual events as they arise. Agree who will review and submit the annual return. Retain quarterly evidence alongside this list so the annual work begins with complete business records and clear remaining tasks.
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.