Prepare for MTD for Income Tax in FreeAgent

This article provides an overview of Making Tax Digital (MTD) for Income Tax and offers guidance on how to get ready for it using FreeAgent.

From 6th April 2026, MTD for Income Tax will become mandatory in phases based on your total annual income from self-employment and/or property, beginning with those whose total income from their business and/or property is above £50,000 per year - you can find out more on our MTD for Income Tax page.

HMRC requires anyone registered for MTD for Income Tax to keep digital records and send four quarterly updates about their business and/or property income and expenses to HMRC. They will also have to submit an end-of-year update and a final declaration after the end of the tax year. Read more about first year of MTD for Income Tax submissions.

If you have more than one income stream, for instance if you're self-employed and also a landlord, you'll need a sole trader and an unincorporated landlord account in FreeAgent. 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.

Preparing your accounts in FreeAgent

Before you send quarterly updates to HMRC using FreeAgent, there are a number of things you’ll need to check to ensure that FreeAgent creates an accurate quarterly report for your relevant income stream.

1. Check your accounting dates

Make sure that your FreeAgent start date is correct, which is the date from which you started keeping your books in FreeAgent. Find out more about the FreeAgent start date for new businesses and existing businesses.

To view or change your FreeAgent start date, select ‘Settings’ from the drop-down menu at the top-right of the screen and then select ‘Accounting Dates’ in the ‘Accounting, Tax & VAT’ section.

2. Ensure that all your transactions are recorded correctly in FreeAgent

In order to create accurate quarterly reports, FreeAgent needs to have all the details of your transactions. This includes properties (if you have an unincorporated landlord account type), bank transactions, invoices, bills and out-of-pocket expenses.

As CIS deductions are reported on the CIS contractor’s CIS300 return which HMRC uses to account for those amounts, CIS deductions suffered don’t need to be reported as part of either the contractor’s or the subcontractor’s MTD for Income Tax quarterly updates or final declaration.

Because the deductions on a subcontractor’s HMRC record will be populated from the information HMRC has received from the contractor’s CIS300 returns, it’s important to check that the correct deductions have been reported to HMRC.

Properties

If you have an unincorporated landlord account type, add each property that you rent out and assign the appropriate ownership if applicable. You can then record rental income for the properties and allocate costs to them.

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, they can only access the MTD submissions you choose to send them.

Connecting your bank feed to FreeAgent is a huge timesaver, as it means less manual data entry. This connection is safe, secure and private between your bank account and your FreeAgent - meaning you have full control of what happens to that data.

If a bank feed isn't available for your bank, or you need to import historical transactions that are outside the scope of your bank feed, you will need to either upload bank statements or enter transactions manually. If you have a bank feed enabled to import transactions automatically, be careful not to duplicate any of these transactions with a manual import as this will cause transactions to be recorded twice.

After your bank transactions have been imported or uploaded, you will need to explain them. Once you’ve started explaining transactions, FreeAgent’s Guess feature will attempt to explain your transactions automatically. Find out more about how to manage Guess. 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 below the VAT threshold and not VAT-registered, you can leave the VAT rate as 'Auto' when explaining bank transactions or change it to 'Out of Scope'. If you leave the VAT rate as 'Auto' and then register for VAT in the future, FreeAgent will automatically reclaim the VAT on these purchases on your first VAT return if required.

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 submission. You'll find this on the Self Employment page if you have a sole trader account type and on the UK Property page if you have an unincorporated landlord 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. 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.

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

Other important things to remember

By enabling bank feeds and regularly explaining your imported bank transactions, your bank balance in FreeAgent should match the balance in your online bank account. If the figures don't match, follow our guidance for addressing discrepancies before you make any submissions through MTD.

If any of your transactions have been explained incorrectly, you’ll need to either edit or remove the bank transaction explanations. If you need to create a credit note, make sure that you correctly net it off with the invoice.

How to send quarterly updates to HMRC via MTD for Income Tax

Once you’ve completed the steps above, you’ll be ready to connect FreeAgent to HMRC for MTD for Income Tax and send quarterly updates to HMRC using FreeAgent.

You can enable quarterly updates to be sent to HMRC automatically.

Sending end-of-year updates and final declarations to HMRC for MTD for Income Tax

End-of-year updates can be submitted after the final quarterly update for the tax year in question has been sent to HMRC by selecting ‘Send End of Year Update’ in the top-right of any page in the MTD for Income Tax area.

Once an end-of-year update has been submitted, you can send a final declaration by selecting ‘Send Final Declaration’.

If you have a self-employed business and also rent out properties, you’ll need separate FreeAgent accounts and both accounts will need to be signed up to MTD for Income Tax. You’ll need to submit four quarterly updates for each income stream separately but only one final declaration, which can be submitted from either FreeAgent account. Read more about how to use FreeAgent for Making Tax Digital (MTD) for Income Tax if you’re a sole trader with multiple businesses or rental income.

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

Quarterly updates send the cumulative amount of income and expenses to HMRC for the quarterly period and retrieve a new annual tax estimate in return. Quarterly updates need to be submitted to HMRC every three months for each separate self-employment and property income source. Accounting and tax adjustments don’t need to be made before sending a quarterly update.

If you’ve made changes to the bookkeeping after submitting the quarter four update, you can send an extra quarterly update to get an up-to-date tax estimate. To do this, select ‘Send update’ in the top-right of any page in the MTD for Income Tax area.

The end-of-year update covers all the other adjustments and allowances that need to be reported before you submit the final declaration. The final declaration finalises the Income Tax position for the whole of the tax year.

Additional resources

You might find the following articles useful on MTD for Income Tax:

• First year of MTD for Income Tax submissions
• How to use FreeAgent for MTD for Income Tax if you’re a sole trader with multiple businesses or rental income
• Automate quarterly MTD for Income Tax submissions
• Update your Making Tax Digital for Income Tax settings
• Switch to calendar quarterly update periods for Making Tax Digital for Income Tax
• Supported income sources for Making Tax Digital for Income Tax
• Complete the Annual summary page
• Enter adjustments and allowances for Making Tax Digital for Income Tax
• Making Tax Digital for Income Tax adjustments and allowances
• Enter Individual Information for Making Tax Digital for Income Tax
• Viewing a breakdown of a tax estimate