Frequently asked questions about MTD for Income Tax in FreeAgent

Can I try out FreeAgent before subscribing?

When you sign up to FreeAgent, you automatically get a 30-day free trial. You can use this time to set up your account and get to grips with FreeAgent and become familiar with how it works. Read more about how to get started with FreeAgent.

You can also take an interactive tour of our MTD for Income Tax functionality.

There are dedicated articles to help you familiarise yourself with FreeAgent’s terminology and you’ll also find lots of helpful information and videos, and links to our ‘Getting Started’ webinar recordings, on our Getting Started page.

If your business is already trading and you've been recording your accounts in another software package, read our guide to switching to FreeAgent for useful information on entering your accounting dates and opening balances.

When you decide to use FreeAgent for MTD for Income Tax going forward, you can, if you need to, reset the data in your account and start with a clean slate from the beginning of the tax year. Please note that if you connect FreeAgent to HMRC for MTD for Income Tax and then reset the data, you’ll need to reconnect to HMRC for MTD for Income Tax.

How does MTD for Income Tax work in FreeAgent if I’m both self-employed and a landlord?

If you have multiple self-employment income streams, you’ll need a separate FreeAgent sole trader account for each sole trader business.

If you have a self-employed business and also rent out properties, you’ll need a separate FreeAgent account for each income stream. Therefore, you’ll need a sole trader account and an unincorporated landlord account. Please note that you can't use a sole trader account to send quarterly updates about your property income and expenses to HMRC. The property functionality is only available in unincorporated landlord accounts.

If you’re a landlord with multiple properties and owners, you’ll only need one unincorporated landlord account per property portfolio, which can be used by multiple individuals who jointly own properties, as long as they are happy to share individual personal information with their fellow property owner(s). HMRC says that jointly owned property very rarely counts as a partnership so if you own property jointly and need to file through MTD for Income Tax, please make sure you sign up for an unincorporated landlord FreeAgent account, not a partnership account.

Once you’ve added your properties and ownership arrangements, you can record rental income and costs for a property in your landlord account, and allocate property fees or charges deducted to rental income.

When you request data from HMRC or make an MTD for Income Tax submission in one of your FreeAgent accounts, if you then request a tax estimate or tax breakdown in your other FreeAgent account, this will reflect the data or submission from your first account.

Read more about how to use FreeAgent for MTD for Income Tax if you’re a sole trader with multiple businesses or rental income.

If you have a business banking account with either NatWest, Royal Bank of Scotland, Ulster Bank or Mettle, you have the option to use one FreeAgent account per business bank account for free for as long as you retain your bank account or make at least one transaction a month from your Mettle account (optional add-ons may be chargeable).

How do I set up MTD for Income Tax in FreeAgent?

1. Sign up for MTD for Income Tax with HMRC

The first thing you need to do is sign up for MTD for Income Tax with HMRC. Visit HMRC’s MTD for Income Tax sign-up page to sign your income stream up, whether that's a business you run as a sole trader, or property rental income.

If you have more than one MTD-qualifying income stream, you’ll need to sign up each one for MTD for Income Tax. You’ll also need separate FreeAgent accounts for each trade you have and another separate account if you’re a landlord. Read more about how to use FreeAgent for MTD for Income Tax if you’re a sole trader with multiple businesses or rental income.

If you need to sign up multiple sole trader businesses for MTD for Income Tax, we'd recommend ensuring that each business has a different and recognisable trading name so you can tell them apart when connecting FreeAgent to HMRC. You can update your business trading names with HMRC if needed.

2. Connect FreeAgent to HMRC for MTD for Income Tax

Once you’ve signed up for MTD for Income Tax with HMRC, you can connect your FreeAgent account to HMRC for Income Tax.

You’ll only be able to set up the MTD for Income Tax connection for your own FreeAgent login. If you have an unincorporated landlord account and there’s multiple owners who need to file using MTD for Income Tax, they’ll need to be set up as separate users of the FreeAgent account and log in to the FreeAgent account with their own email and password to set up the connection.

Please note that FreeAgent can only show a tax year once it has started. If you click the green button or go to 'Taxes' and then 'Income Tax', but don't see your MTD for Income Tax returns, it may be because the tax year in question has not started yet. For example, if you sign up to MTD for Income Tax for the 2027/28 tax year, you won't see an MTD for Income Tax return in FreeAgent until 6th April 2027.

How are income and costs recorded in FreeAgent?

In order to create accurate quarterly reports, FreeAgent needs to have all the details of your bank transactions, invoices, bills, out-of-pocket expenses and properties (if you have an unincorporated landlord account type). Read more about preparing your accounts in FreeAgent for MTD for Income Tax.

Please note that you won’t be able to copy and paste income and expense totals from a spreadsheet into FreeAgent.

Bank transactions

We recommend that you import your bank transactions into FreeAgent automatically by enabling a bank feed. Please note that this does not allow HMRC access to any information you add to your accounting software or any bank feeds you have connected to it, they can only access the MTD for Income Tax submissions you choose to send them.

After your bank transactions have been imported or uploaded, you will need to explain them. If you need to, you can split transactions between multiple categories and allocate fees or commission. Please note that you don’t need to have receipts attached to your bank transactions, you just need to keep copies of the receipts.

Once you’ve started explaining transactions, FreeAgent’s Guess feature will attempt to explain your transactions automatically. If you’re using a personal bank account for your business and this option has been selected in FreeAgent, you only have to explain the transactions that relate to your business. 

If you're using a business bank account, you can explain personal transactions as 'Money Paid to User' and 'Drawings' for money out transactions, or 'Money Received from User' and 'Capital Introduced' for money in transactions. Read more about explaining money taken out of a business and money paid into a business by a sole trader, partner or unincorporated landlord.

Income

To record your income, you can create invoices or explain the money you receive into your bank account as ‘Type - Sales’ for sole traders or 'Type - Rental Income' for landlords if you’re not sending invoices. If you receive cash payments, find out how to record cash transactions in FreeAgent.

FreeAgent will automatically populate your total income for the quarter in the ‘Income’ section of your MTD for Income Tax submission. You'll find this on the Self employment page if you have a sole trader FreeAgent account type and on the UK property page if you have an unincorporated landlord FreeAgent account type.

Costs

To record your costs, you can create supplier bills, add out-of-pocket expenses or explain the money out of your bank account as ‘Type - Payment’ and select the relevant cost category. You only need to add each cost once, there is no need to add an out-of-pocket expense if the cost is already recorded through the Banking area. Before entering this data, it’s a good idea to familiarise yourself with the difference between an expense, a bill and a bank payment in FreeAgent.

You can also use Smart Capture to speed up your expense management.

FreeAgent will automatically populate your total costs for the quarter in the ‘Expenses’ section of your MTD for Income Tax submission.

Why are my bank transactions not showing in FreeAgent?

You can import your bank transactions into FreeAgent automatically by connecting your bank account and enabling a bank feed. If your bank account is with a challenger bank such as Monzo, Starling Bank, Revolut or Capital on Tap, then you can set up an integration, which will function in a similar way to a bank feed.

If your FreeAgent start date is set in the future, your bank transactions won’t start importing into FreeAgent until that date. For example, if you connect your bank feed on 31st March but your FreeAgent start date is 6th April, your bank transactions won’t start importing into FreeAgent until 6th April.

Read more about how Open Banking bank feeds work.

Why can’t I see the ‘Edit tax year details’ button?

You can edit the tax year details after the start of the tax year in question (from 6th April) by selecting ‘Edit tax year details’ at the top-right of the MTD for Income Tax area.

If you use FreeAgent with your accountant, they may submit your quarterly updates, end-of-year updates and/or final declarations on your behalf and restrict your ability to access and submit these. If your accountant has restricted your access, you won’t see the ‘Edit tax year details’ button to switch to calendar quarterly update periods for example.

Please speak to your accountant if you have any questions or want to be able to access these. FreeAgent is unable to change these permissions for you.

What’s the difference between quarterly updates, an end-of-year update and a final declaration?

Quarterly updates

Quarterly updates need to be submitted to HMRC every three months. They send the cumulative amount of income and expenses to HMRC for the quarterly period, and HMRC send back a new annual tax estimate in return. You don’t need to make accounting and tax adjustments before sending a quarterly update.

If you have multiple income streams signed up to MTD for Income Tax, for example if you have multiple self-employments or you have a self-employed business and also rent out properties, you’ll need to send four quarterly updates for each income stream. You can find out what counts as multiple income streams, as well as tips for managing more than one income stream, in our how to efficiently manage multiple income streams guide.

End-of-year update

The end-of-year update can be submitted after the final quarterly update for the tax year in question has been sent and after the tax year has ended. It covers all the adjustments and allowances that need to be reported before you submit the final declaration.

If you have multiple income streams signed up to MTD for Income Tax, you’ll need to send an end-of-year update for each income stream. 

When you request data from HMRC or make an MTD for Income Tax submission in one of your FreeAgent accounts, if you then request a tax estimate or tax breakdown in your other FreeAgent account, this will reflect the data or submission from your first account.

Final declaration

The final declaration finalises the Income Tax position for the whole of the tax year and covers all of your income sources and individual information.

If you have multiple income streams signed up to MTD for Income Tax, you only need to include individual information in one FreeAgent account and file one final declaration from one of your FreeAgent account(s). You would then be able to mark the final declaration(s) as sent in your other FreeAgent account(s).

How do I enter pension income for MTD for Income Tax?

The way to enter pension income for MTD for Income Tax depends on the type of pension income you need to report. For example, UK workplace private pension income is entered on the Employment page, whereas UK state pension income and foreign pension income is entered on the Individual information page.

You can enter the pension income at the end of the tax year to include it in your end-of-year update. This information must be submitted to HMRC before making your final declaration.