Skip to main content Mistakes to avoid when filing your MTD quarterly updates and final declaration
Making Tax Digital (MTD) for Income Tax is a big change, and if you’re using it for the first time, it’s completely understandable to feel unsure or to make the occasional mistake. New rules, new processes and new deadlines all take time to navigate.
In this guide, you’ll learn about some of the most common mistakes at each stage of the journey, and how you can avoid them.
Mistakes when getting started
Getting confused about the dates for your quarterly updates
By default, MTD quarterly updates run along with the tax year (for example, 6th April - 5th July for the first quarter). However, it is possible to instead choose to align your dates with calendar months (e.g. 1st April - 30th June for the first quarter), this is called a ‘calendar year election’ and the resulting quarters are called ‘calendar year quarters’.
Craig Ogilvie, Director of Making Tax Digital at HMRC, says they have seen early adopters getting confused by this. “If you’re making the calendar year election, you have to make sure that that’s done in software at the start of the process,” he says. “That’s been a positive learning of testing - to be really clear on that.”
Not signing up correctly for all qualifying income sources
MTD for Income Tax requires you to sign up for each qualifying income source - self-employment, property, or both - separately.
HMRC treats each sole trade as its own self-employment income source, so you must sign up separately for each business you run as a sole trader. HMRC treats all UK property income as a single income source - even if it comes from multiple properties - so you only need to sign up once for property income.
Note: If you have income from self-employment and property income, you need to sign up for both your property income and each self-employment business you run.
HMRC treats each qualifying income source independently and rejects submissions for any income source you haven’t enrolled.
Before you start reporting, make a list of all your qualifying income sources and confirm that your software shows each one as enrolled.
Not completing the identity and eligibility checks in the sign-up process
The MTD sign-up process includes important identity and eligibility checks. Because the process runs across multiple stages and can take time, it’s easy to miss this step.
However, if you skip these checks, HMRC won’t accept your MTD submissions.
It’s important to respond promptly to HMRC’s requests for ID and eligibility information, and wait for confirmation that the MTD sign-up process is complete before you start reporting.
Failing to connect your accounting software to your HMRC account
After you sign up for MTD, you must authorise your accounting software to connect to HMRC. This is an essential step because you can’t make any MTD submissions without the connection in place.
Check your software settings to confirm you have an active MTD for Income Tax connection to the correct HMRC account.
Filing under the wrong income stream
When setting up MTD for Income Tax, you can accidentally file updates under the wrong income stream, such as submitting property income through a sole trader business. HMRC may allow the submission to go through, but filing under the wrong stream can lead to rejected updates or incorrect records.
Check that you’ve selected the correct income stream before you start reporting for each source of income. (Here’s how you can do that in FreeAgent.)
Choosing the wrong accounting basis
MTD allows you to report your income using either the cash basis or accruals basis, but choosing the wrong option can push income and expenses into the wrong period.
This can throw off your quarterly updates and create errors in your tax calculations.
Confirm your accounting basis in your software settings - or talk to your accountant or bookkeeper - before you begin MTD reporting.
Quarterly update mistakes
Submitting quarterly updates with incomplete or incorrect digital records
Quarterly updates must reflect complete and accurate digital records, even though they do not calculate the tax you owe at the time. Quarterly reporting can feel less formal than year-end submissions, which may make mistakes more likely, but omitting transactions or relying on estimates can trigger significant adjustments later in the year.
To spot issues early, make sure you keep records up to date during the quarter and review transactions before submitting.
Failing to categorise transactions in HMRC-recognised categories
MTD requires you to submit transactions using HMRC-recognised categories. Leaving any of your transactions uncategorised or categorising a transaction incorrectly can influence how HMRC interprets your data. This can affect your tax calculations.
Review uncategorised transactions before submission and select the correct categories in your software. Seek guidance from an accountant or bookkeeper, if needed.
Neglecting to record or send quarterly updates for each separate source of qualifying income
Each qualifying income source under MTD requires its own quarterly updates. Reporting one activity while missing another - such as submitting self-employment updates but not those for rental income - will result in incomplete reporting. It’s easy to overlook this when managing multiple income sources. But if you have not fully complied with MTD for all your income sources, you may face consequences from HMRC.
Track deadlines by income source and review your submissions each quarter to confirm you’ve reported everything.
Taking part in HMRC’s MTD for Income Tax testing phase?
Don’t make the mistake of assuming your submissions should start from the date you sign up. HMRC expects reporting to cover the full tax year in which you sign up. This might mean you have to include backdated transactions from earlier quarters in your reporting.
Final declaration mistakes
Failing to submit the final declaration after quarterly submissions
When you’ve submitted your four quarterly updates, you will not quite be finished with your MTD for Income Tax obligations. You still need to submit year-end information for any adjustments and allowances, plus a final declaration to detail all your other income for the year.
Treat the final declaration as a separate year-end task and allow yourself plenty of time to complete it.
Attempting to file the final declaration outside of the MTD system
Once you sign up for MTD for Income Tax, the MTD system replaces the old Self Assessment process for submitting your annual tax declaration. Relying on the familiar Self Assessment route can feel natural, but HMRC will reject the submission.
When you come to submit your final declaration, make sure you’re following the MTD process, using HMRC-recognised MTD software like FreeAgent.
Failing to include all taxable income in the final declaration
The final declaration brings together all your taxable income for the year, including sources such as income from employment, savings interest and dividends. Because quarterly updates focus on business or property income, these additional amounts can slip through at year end.
Taking time to review all income sources before you submit helps you complete the declaration accurately.
Missing out adjustments or tax reliefs in the final declaration
Under MTD for Income Tax, you report certain adjustments and tax reliefs - such as capital allowances - either as you go, or at year end. Leaving these out can result in inaccurate reporting and an incorrect tax calculation, so make sure you report them at year end (as a minimum).
Review your final declaration carefully and include all relevant adjustments and tax reliefs.
FreeAgent: here to help you get MTD done with confidence
FreeAgent’s HMRC-recognised MTD for Income Tax solution helps reduce the risk of some of these common mistakes and missed steps. With built-in automations and guided workflows for digital record-keeping, quarterly updates and the final declaration, FreeAgent gives you a clear and reliable way to manage your MTD obligations.
Learn how to link your FreeAgent account to HMRC and find out more about MTD in our Making Tax Digital hub.
Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
