How to enter adjustments and allowances for Making Tax Digital (MTD) for Income Tax

This article explains how to enter accounting adjustments or allowances to send to HMRC for Making Tax Digital (MTD) for Income Tax, also known as Making Tax Digital for Income Tax Self Assessment (MTD for ITSA), using FreeAgent.

Please note that FreeAgent’s MTD for Income Tax functionality is currently in pilot. Therefore, you’ll only have access to the functionality if you work with an accountant who is a FreeAgent partner and your business is eligible for HMRC’s pilot scheme. The functionality currently won’t be available if you have an unincorporated landlord account.

If you have a 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 ITSA and signed up your clients.

You’ll need full (level 8) access to your FreeAgent account to enter accounting adjustments to adjust turnover or costs to send to HMRC as part of a quarterly update, or enter adjustments and allowances to send to HMRC as part of an End of Period Statement.

Please note that our support team can’t help you with adjustments or allowances as we’re not authorised by HMRC to provide accounting advice. If you’re unsure which adjustments and allowances you need to make, please speak to your accountant.

Entering accounting adjustments for a quarterly update

If you need to adjust the income or expenses figures on a quarterly update, the easiest way is to edit the original item in FreeAgent. For example, you can edit the original invoice, bill, out-of-pocket expense or bank transaction.

However, if you’ve moved to FreeAgent during the tax year and need to adjust your income or your expenses figures for the current tax year to correct a previous quarterly update submitted outside of FreeAgent, you can follow the steps below to enter accounting adjustments.

1. Navigate to the Self Assessment tax return

Navigate to the 'Taxes' tab at the top of the screen and select 'Self Assessment' from the drop-down menu.

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Select the relevant tax year either from the list on the left-hand side of the panel or from the 'History' drop-down menu.

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2. Enter the accounting adjustments

Select ‘Edit Details’.

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Enter the amounts you need to adjust any of the figures by, with a minus sign (-) in front of any figures you need to reduce, and select ‘Save Changes’ at the bottom of the screen to complete the process. Please note that any adjustments entered in the ‘Accounting Adjustments’ section will only update the figures on the current MTD for Income Tax quarterly update and will not update any of the figures in your accounting reports. If you need to adjust the figures in your accounting reports to reflect these changes, please speak to your accountant for guidance.

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Income and expense figures which have been adjusted will be labelled ‘adjusted'.

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Once you’ve made the relevant adjustments, select ‘Send [X] Update’ to send the quarterly update to HMRC. The accounting adjustments will be sent to HMRC on the final quarterly update for the tax year.

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Entering adjustments or allowances as part of an End of Period Statement

When submitting your End of Period Statement to HMRC, you may need to enter adjustments or allowances such as overlap relief claimed. If you’re unsure whether you need to enter an adjustment or allowance, please speak to your accountant.

1. Navigate to the Self Assessment tax return

Navigate to the 'Taxes' tab at the top of the screen and select 'Self Assessment' from the drop-down menu.

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Select the relevant tax year either from the list on the left-hand side of the panel or from the 'History' drop-down menu.

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2. Enter any adjustments or allowances

If you need to adjust any of the figures in the ‘Adjustments’ or ‘Allowances’ sections, select the override icon to the right of the relevant item. If you’re unsure which figures need to be included in these boxes, please speak to your accountant.

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Enter the new value in the field provided.

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To revert an adjustment to its original value, select the cross icon to the right of the adjusted value.

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