What Expenses Go in an MTD Quarterly Update?

An MTD quarterly update is a year-to-date summary of how a business is doing. It is not a finished tax return, and HMRC does not require you to make every accounting or tax adjustment before sending it.

That distinction makes quarterly updates much simpler, but it does not mean any outgoing payment can be called an expense.

Start with your business records

Record income and expenses digitally as you go. For the quarterly update, send the cumulative totals from the start of the tax year to the quarter end. If you discover a mistake later, correct your records and include the corrected year-to-date totals in the next update.

Even if a business has no activity in a quarter, HMRC still expects an update for that business.

Consolidated expenses for businesses under £90,000

HMRC allows customers with annual turnover below £90,000 to report a single total for allowable expenses instead of breaking expenses into categories. This is known as consolidated expenses.

That is the straightforward lane flonancial currently supports: ordinary sole-trader or UK-property income and expense totals for each business. If a business is at or above £90,000 turnover, or needs specialist categories or tax adjustments, use software and advice that supports those details.

Common allowable business expenses

Depending on the business, ordinary expenses can include stock or materials, business travel, insurance, phone costs, advertising, accountancy fees and the business share of relevant home-working costs.

Do not include personal spending. Do not treat income tax, National Insurance, drawings or CIS tax deducted by a contractor as business expenses. Some costs have special rules, so check the GOV.UK allowable-expenses guidance or ask an accountant if you are unsure.

Do quarterly figures have to be final?

No. HMRC says accounting and tax adjustments are not required before a quarterly update. The update is a summary, not your final tax position. Adjustments, reliefs and other year-end information are dealt with before you submit your tax return.

That does not make accuracy optional. Your update should be based on the best records you have at the time, and obvious mistakes should be corrected promptly.

Example: correcting Quarter 1 in Quarter 2

A decorator submits Quarter 1 with £18,000 income and £6,200 expenses. In September, they find a missing £400 materials invoice. Their Quarter 2 update should include the corrected cumulative expenses from 6 April to the Quarter 2 end. They do not send a separate negative transaction or start the totals again from zero.

A sensible pre-submit check

• The figures belong to the selected business and tax year.
• Income and expenses cover the correct cumulative period.
• Personal spending and tax payments are excluded.
• The totals are plausible compared with the underlying records.
• You have kept the spreadsheet and supporting evidence.

HMRC's official guide explains how to send quarterly updates. With flonancial, straightforward businesses can keep their spreadsheet, choose the income and expense totals, review them and submit them to HMRC for free.