MTD for Income Tax: how to efficiently manage multiple income streams

As a sole trader, you’ve probably heard all about the benefits of ‘diversifying your income streams’. So you might have more than one small business, or be a sole trader and landlord, with income coming from different sources. But what was a strength might feel like a stress under Making Tax Digital (MTD).

With the advent of MTD for Income Tax, many people have told us they’re worried about the extra admin involved in submitting quarterly updates for each of their qualifying income streams. As sole trader and landlord Richard Chenery told our content team: “One big frustration for me is that having multiple income streams requires multiple MTD submissions.”

Customers have also been in touch with our super-star support team for advice. “One of the most commonly asked questions we hear is ‘how can I manage my bookkeeping and MTD submissions if I have sole trader and property income?’” says Sondari, Senior Support Manager at FreeAgent. “But don’t worry, there are some easy ways to keep on top of your different income streams.” 

These tried-and-tested tricks will help you save time and avoid mistakes when managing your finances. And they all come with a seal of approval from our FreeAgent experts. 

From this point on, whether you have multiple small businesses, more than one sole trade, or sole trade and property income, we’ll call this ‘multiple income streams’.

What counts as ‘multiple income streams’?

If you’re a sole trader who also has income from property you own personally (rather than through a limited company), this question is easy to answer. Yes, your sole trade income and property income do count as separate income streams. 

If you’re a sole trader with a portfolio career, it can be harder to figure out whether all your income-generating activities count as one sole trade, or multiple trades. Here are a few hints that you might have multiple income streams (but if you’re still unsure, best to speak to an accountant):

• if your different trades aren’t related activities (e.g. you freelance as a software consultant and you also upcycle furniture to sell on)
• if your small businesses operate under different business names
• if you’ve previously completed separate self-employment pages (SA103) of your Self Assessment tax return

Note: Income from employment or pensions doesn’t count as qualifying income for MTD for Income Tax, so you won’t need to complete extra quarterly submissions for these sorts of income. 

7 easy ways to manage more than one income stream

1. Use a separate bank account for each income stream

The golden rule of managing multiple income streams is separating them. And the first step is to make sure you have separate bank accounts. 

There are so many advantages to having separate bank accounts for each income stream. It’s easier to keep your accounts organised. It speeds up your tax admin. It gives you a better idea of cashflow at a glance. As an extra bonus, it can also add credibility and brand recognition to your business. Suppliers pay promptly when they feel confident, like when they immediately recognise the business name on the account. 

If you’re currently using a personal bank account for your sole trade or landlord income, check out our guide on whether you need a business bank account.

2. Connect your bank accounts to your accounting software

The next thing you’ll want to do to make your admin easier is connect your bank accounts to your accounting software. Once your account is connected, you’ll see your bank transactions pulled into your accounting software. This will save you time manually inputting figures - and ensures accuracy.

3. Batch up your admin tasks for each income stream

Jumping between different tasks (sometimes called context switching) is proven to have negative effects on performance. So one thing you can do to improve your efficiency is set aside dedicated admin time.

Explaining bank transactions is one admin task that’s good to do in bulk. Once a month, schedule time to run through your transactions and make sure they have the right categories assigned. If you use FreeAgent, many of your transactions will already be explained by our Guess AI, so you’ll just need to check that the categories are correct and change any that aren’t. If you have a lot of transactions coming in, you might prefer to do this weekly.  

Similarly, invoicing is faster if you block out time to create and send all your invoices for a particular sole trade at once. (And if you use FreeAgent to automatically send invoices, payment reminders and thank yous, that’s even more time saved!)

4. Take note of any shared expenses or assets between your income streams

Managing multiple income streams can become a little more complex if you have shared expenses or assets - but not if you get your head around the rules early. 

Examples of shared expenses or assets could be:

• a laptop and/or phone used for two businesses
• office space or business use of home for more than one business
• combined professional fees, like an accountant or bookkeeper who manages the books for both your business and property income

Make sure you’re splitting the cost correctly between each business (and potentially personal use). You can do this by calculating the proportion of time the asset is used for each purpose. 

For example, if you purchase a laptop to use for both your businesses and some personal tasks, you might calculate that one business accounts for 50% of its use, the other business for 20%, and personal use for 30%. This means you can claim 50% of the laptop purchase cost in the account of one business and 20% of the cost in the account of the other business.

5. Set up a different invoice template for each income stream

Invoice templates are your productivity friends. Take the time to set up one custom invoice template in each of your FreeAgent accounts, and reap the time-saving rewards. 

Your top invoice template tips:

• make sure each account has a visually distinct template - you don’t want to get your accounts confused and send the wrong invoice to the wrong person, so make sure you can immediately tell them apart at a glance
• add payment buttons or bank account details - this makes sure each payment goes straight to the correct income stream’s bank account 
• create a price list of your most-billed products or services in each account - then every time you create a new invoice, you can add these in one click (correct price, income category, VAT status and all)

6. Keep on top of ad-hoc costs and expenses on the go

Some tasks are easier to do when they’re fresh in your mind, and this is especially true of on-the-go expenses. It takes a lot of memory and time to add your out-of-pocket expenses if you leave it till the end of the month - let alone the end of the year! 

To speed up the process (and make sure you don’t forget anything), add the expense to your accounting software as soon as you’ve paid for it. The FreeAgent mobile app is ideal for this - you can add multiple FreeAgent accounts to the app and switch between them in a second. Once you’re in the right account, just take a photo of your receipt (or upload a file) and let Smart Capture extract the data from it. 

If the cost is an out-of-pocket expense, Smart Capture will create a new entry with the details taken from the receipt. If you paid for the cost from your business bank account and you have a live bank feed for that account, Smart Capture will automatically link the receipt to the relevant bank transaction. 

In fact, you can manage most of your accounts from your mobile! Discover just how much you can tick off on the go in our support article.

7. Get ready to submit your first quarterly updates for MTD for Income Tax

If you’ve done all of the above, then by the time you come to submit your first quarterly updates before 7th August, you’ll have made it very easy for yourself. 

You will have to submit a separate quarterly update for each qualifying income stream (one for each sole trade and one for all your property income). But with separate bank accounts connected to distinct FreeAgent accounts, you’ll just need to double-check your income and cost figures look correct and click ‘Send Update’. 

If you’ve kept your accounts up to date and accurate, the whole process of making your submissions can take a minute or two. And then you’re done, responsibilities to HMRC met for the next three months. 

Want to know more about MTD for Income Tax?

We have loads of helpful guides and resources to help you get MTD done without faff. And if you need HMRC-recognised software to help you handle MTD, you’re in the right place, cause we do that too!