Enter adjustments and allowances for Making Tax Digital for Income Tax
This article provides a simple guide on how to enter accounting adjustments or allowances to send to HMRC for Making Tax Digital (MTD) for Income Tax using FreeAgent.
Please note:
- FreeAgent’s MTD for Income Tax functionality is currently in pilot. Therefore, you’ll only have access to the functionality if your business is eligible for HMRC’s pilot scheme and meets FreeAgent’s eligibility criteria.
- This functionality is not currently available for unincorporated landlord FreeAgent accounts. However, we plan to support this shortly and will let you know once it is available.
- You’ll need full (level 8) access to enter adjustments and allowances to send to HMRC as part of a quarterly update or at the end of the year.
- If you have a FreeAgent Practice Dashboard, you’ll need to switch to your client’s account to follow the steps below once you’ve set up your practice for MTD for Income Tax and signed up your clients.
- We are not authorised by HMRC to provide accounting or tax advice. Therefore, FreeAgent’s support team cannot help you with adjustments and allowances. If you’re unsure which adjustments and allowances you need to make, please speak to your accountant or to HMRC.
You may need to enter adjustments or allowances such as a basis period adjustment. If you’re not sure whether you need to enter an adjustment or allowance, please speak to your accountant.
You can enter the information at the end of the tax year or enter it earlier to automatically include it in your quarterly update information if you wish. This information must be submitted to HMRC before making your final declaration.
HMRC has published detailed guidance for sole traders, landlords, and accountants who want to volunteer to use and test MTD for Income Tax for the 2024/25 and 2025/26 tax years. After you’ve signed up to test MTD for Income Tax, you’ll get access to a dedicated support team at HMRC. You’ll also be able to review and update your details through HMRC Online Services.
1. Navigate to the Annual Summary
Navigate to the ‘Taxes’ tab at the top of the screen and select ‘Self Assessment’ from the drop-down menu.
Select the relevant tax year from either the list on the left-hand side of the panel or from the 'History' drop-down menu.
Select the ‘Annual Summary’ tab.
2. Enter any adjustments or allowances
If you need to, you can adjust any of the figures in the Adjustments or Allowances sections.
Add an adjustment
To add an adjustment, select ‘Add an Adjustment’ and select the type of adjustment you wish to report from the drop-down menu. If you’re unsure which figures need to be included in these boxes, please speak to your accountant.
Find out more about what the different adjustments mean and how they correspond to the old Self Assessment forms.
Enter the new value in the ‘Amount’ field and select ‘Add Adjustment’ to complete the process. If you need to add an adjustment to reduce your figures, enter a minus in front of the amount.
To edit an adjustment, select ‘Edit’ to the right of the adjustment and to remove an adjustment, select the cross ‘X’.
Add an allowance
To add an allowance, select ‘Add an Allowance’ and select the type of allowance you wish to report from the drop-down menu. If you’re unsure which figures need to be included in these boxes, please speak to your accountant.
Find out more about what the different allowances mean and how they correspond to the old Self Assessment forms.
Enter the new value in the ‘Amount’ field and select ‘Add Allowance’ to complete the process.
To edit an allowance, select ‘Edit’ to the right of the allowance and to remove an allowance, select the cross ‘X’.
3. Submit non-financial information
When entering an adjustment or allowance, you also need to submit non-financial information about your business details and Class 4 National Insurance contributions to HMRC. To complete this section, scroll down to the ‘Non-financial Information’ section and complete the relevant information.
If you’re unsure how to complete this section, please speak to your accountant or to HMRC.
Class 4 National Insurance contributions
Most sole traders have to pay Class 4 National Insurance contributions (NICs), but there are a few exceptions. For example, if you are under 16, over state pension age or not a resident in the UK for tax purposes at the start of the tax year in question, you may be exempt from paying Class 4 NICs. If this applies to you, select the relevant option from the drop-down menu. If you’re not exempt from paying Class 4 NICs, select ‘Not Exempt’.
If you’re unsure, please speak to your accountant or to HMRC.
What happens next?
When you send your next update to HMRC, any information entered will be included in your next submission and used by HMRC to calculate your tax estimate. This information must be submitted to HMRC before making your final declaration.