Making Tax Digital · Sole traders
Why a quarterly MTD update is an information summary, not a tax demand
ONLY£15A MONTHA quarterly update tells HMRC about business income and expenses recorded so far.
A quarterly update tells HMRC about business income and expenses recorded so far. It does not turn Income Tax into four new quarterly bills. Understanding that distinction makes it easier to review the update without mistaking a provisional estimate for a payment notice.
What the update actually does
The update sends the required category totals for the relevant business and reporting period. For MTD Income Tax, later updates contain cumulative figures. A successful submission records that reporting event; it does not settle the full year's tax position.
The annual process brings together other income, relevant adjustments, reliefs and tax already paid. An estimate produced before that work is complete may change substantially. A sole trader with PAYE income should therefore check whether that income is included before using the estimate to plan savings.
Keep reporting and payments on separate calendars
Payments on account are generally instalments towards the annual Self Assessment liability, where the rules require them. They are not created simply by pressing the quarterly submission button. Conversely, submitting an update does not postpone an existing payment obligation.
Use HMRC's actual statement of account to establish amounts due. If software shows both an estimated tax liability and an outstanding payment, understand how each was calculated rather than assuming they are interchangeable.
Worked example: an estimate changes
Jess records £12,000 income and £4,000 costs in the first reporting period. The £8,000 bookkeeping profit is neither a £8,000 tax bill nor necessarily her annual taxable profit.
Later expenses, personal income and reliefs may change the annual calculation. Jess still needs to review any existing January or July payment obligation separately. The quarterly acknowledgement proves reporting, while her payment record shows what she has paid.
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.
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.
Ask three useful questions
Before acting on a figure, ask which period it covers, whether it is estimated or formally due, and whether payments already made are included. Save the submission acknowledgement with the approved update and keep payment evidence separately identifiable.
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.