MTD quarterly updates are the core new requirement of Making Tax Digital for Income Tax. Instead of filing one annual Self Assessment return, you’ll send HMRC a summary of your income and expenses every 3 months through compatible software.
During a Coconut MTD webinar, attendees had dozens of questions about how quarterly updates work in practice: “Are there penalties for inaccurate MTD quarterly returns?”, “Can you use calendar months system eg 1.4-30.6?”, “Do I need to put invoices into Coconut?”, “How do I record a percentage of utility costs — quarterly or year end?”
Here’s the practical guide to MTD quarterly updates — deadlines, record-keeping, penalties, and how to handle common scenarios.
What Are MTD Quarterly Updates?
According to HMRC’s MTD for Income Tax guidance, a quarterly update is a summary of your business income and expenses for a 3-month period, sent to HMRC through your compatible software.
The update includes:
- Total income for the quarter
- Total expenses for the quarter (categorised if your turnover is over £90,000)
- A summary figure showing your profit for the quarter
The update does not include:
- Individual receipts or invoices (HMRC doesn’t need these uploaded)
- Tax calculations (no tax is due at this point)
- Adjustments like capital allowances or reliefs (these are done at the final declaration stage)
Your software generates the update automatically from your digital records. You review the figures and click submit — the software sends the update to HMRC via API.
When Are Quarterly Updates Due?
You have two options for your quarterly update periods:
Option 1: Tax-year quarters (default)
These follow the UK tax year, which runs from 6 April to 5 April:
| Quarter | Period | Update due by |
|---|---|---|
| Q1 | 6 April – 5 July | 5 August |
| Q2 | 6 July – 5 October | 5 November |
| Q3 | 6 October – 5 January | 5 February |
| Q4 | 6 January – 5 April | 5 May |
You then have until 31 January of the following year to submit your final declaration (which replaces the annual Self Assessment return).
Option 2: Calendar quarters
If your accounting period ends on 31 March (or another calendar date), you can choose calendar quarters instead. For example:
| Quarter | Period | Update due by |
|---|---|---|
| Q1 | 1 April – 30 June | end of month + 1 month |
| Q2 | 1 July – 30 September | end of month + 1 month |
| Q3 | 1 October – 31 December | end of month + 1 month |
| Q4 | 1 January – 31 March | end of month + 1 month |
Choosing your quarter periods
One webinar attendee asked: “Can you use calendar months system eg 1.4-30.6?”
The answer: Yes, but you must choose before your first quarterly update. You cannot change mid-year. If your accounting period ends on 31 March, calendar quarters make sense. If you’re not sure, stick with the default tax-year quarters.
The choice is made in your software settings. Once you submit your first quarterly update, the periods are locked for that tax year. You can change them for the next tax year.
How to Submit a Quarterly Update
The process is straightforward in most compatible software:
- Keep digital records throughout the quarter — enter income and expenses into your software as they happen (or at regular intervals, e.g., weekly)
- Review your records at quarter-end — check for missing transactions, miscategorised expenses, or errors
- Generate the quarterly update — your software calculates the summary automatically
- Review the summary — check the income and expense totals look right
- Submit — click the submit button in your software. The update is sent to HMRC via API
- Get confirmation — you’ll see a confirmation prompt in your software, and the update will be visible in your “Managing My Income Tax” HMRC online account
One webinar attendee asked: “When the quarterly MTD return is filed, do we get confirmation?”
The answer: Yes — you get a confirmation in your software immediately, and the submission is also visible in your HMRC online account under “Managing My Income Tax.”
What Records Do You Need to Keep?
According to HMRC’s record-keeping requirements for MTD, your digital records must include:
If your turnover is under £90,000
For each transaction, you need:
- The date of the transaction
- The amount (income or expense)
- Whether it’s income or an expense
That’s it. You don’t need to categorise expenses by type (travel, office, etc.) for HMRC’s purposes — though your software may do this automatically for your own benefit.
If your turnover is over £90,000
You need fuller categorisation:
- Income type (e.g., sales, rental income)
- Expense category (e.g., travel, office costs, capital allowances)
- Landlords must also record finance costs separately
Do you need to upload invoices?
One webinar attendee asked: “Do I need to put invoices into Coconut?”
The answer: No. HMRC does not require you to upload invoices or receipts. You just need to record the date, amount, and type (income or expense) in your digital records. However, you should still keep your receipts and invoices for your own records — HMRC can ask to see them during an enquiry. Most software lets you photograph and attach receipts to transactions, which is good practice.
Another attendee who used a letting agent asked: “I have passed rentals to a letting agent — they deduct expenses, I don’t get invoices.”
The answer: Just record the dates, income, and expenses as reported by your letting agent. You don’t need the underlying invoices — HMRC only needs the summary data.
Penalties for MTD Quarterly Updates
This was the most common penalty-related question in the webinar: “Are there penalties for inaccurate MTD quarterly returns?”
No penalties for quarterly update inaccuracies
HMRC does not penalise inaccuracies in quarterly updates. The quarterly updates are expected to be based on your best available information at the time — they’re not a formal declaration of accuracy. You correct any errors in your final declaration (the end-of-year return).
This makes sense when you understand the purpose of quarterly updates: they give HMRC a rough picture of your income throughout the year, not a precise tax calculation. If you estimate an expense in Q1 and later find the exact amount, you adjust it in your final declaration.
Penalties that DO apply
According to HMRC’s penalty guidance, penalties apply for:
- Late quarterly updates: A penalty after 3 months of lateness. The amount depends on whether you’ve been late before.
- Late final declaration: Points-based system — you accumulate points for each late submission, and a penalty is issued when you reach the threshold.
- Failure to keep digital records: Penalty of up to £5,000 for deliberate failure to maintain digital records.
- Late payment of tax: Interest on overdue tax plus potential penalties under the new late payment penalty regime.
- Inaccuracies in the final declaration: If your final declaration contains inaccuracies, standard Self Assessment accuracy penalties apply — but not for quarterly updates.
Common Scenarios
Variable income during a quarter
One webinar attendee asked: “I have had four months off over the first MTD quarter — will this raise a red flag?”
The answer: No. HMRC sees summary data only and understands that income varies. If you had no income in a quarter, your quarterly update simply shows £0 income and whatever expenses you incurred. Just keep digital records and send the update as normal.
Apportioning utility costs
One attendee asked: “How do I record a percentage of utility costs — quarterly or year end?”
The answer: Either. You can choose to apportion utility costs (e.g., 20% of your £150/month electricity bill = £30/month business expense) either quarterly or at year-end. If you apportion quarterly, include the apportioned amount in each quarterly update. If you apportion at year-end, include the full amount in your final declaration. Choose one method and be consistent.
For example, if your electricity bill is £180/month and you use 20% for business:
- Quarterly apportionment: £180 × 20% × 3 months = £108 per quarter
- Annual apportionment: £180 × 20% × 12 months = £432 at year-end
No income in a quarter
If you had no business income in a quarter (e.g., you took time off), you still need to send a quarterly update. It will show £0 income and any expenses you incurred (e.g., software subscriptions, insurance). This is normal and won’t trigger any flags.
Multiple income sources
If you have both self-employment income and property income, you send separate quarterly updates for each income source. Your software handles this — you’ll have one set of records for your sole trader business and another for your rental property.
For example, if you earn £40,000 from self-employment and £15,000 from a rental property:
- Quarterly update 1: Self-employment income and expenses
- Quarterly update 2: Property income and expenses
- Final declaration: Combines both with any adjustments
How to Prepare for Quarterly Updates
- Switch to compatible software now — don’t wait until your threshold date. See our MTD software costs guide for options.
- Enter transactions regularly — weekly or daily, not quarterly. This makes the update process a 5-minute review rather than a 3-hour data entry session.
- Keep receipts digitally — photograph them in your software so they’re attached to transactions.
- Review before submitting — always check your quarterly summary before clicking submit. Look for missing transactions, miscategorised expenses, or obvious errors.
- Set reminders for deadlines — the deadlines are 5 August, 5 November, 5 February, and 5 May (for tax-year quarters). Set calendar reminders a week before each.
The Bottom Line
MTD quarterly updates are not as scary as they sound. If you’re already using accounting software and entering transactions regularly, the quarterly update is just a review-and-submit process that takes a few minutes.
Key things to remember:
- No tax is due at quarterly stages — payment is still due 31 January
- No penalties for quarterly inaccuracies — just do your best and correct at year-end
- No invoices needed — just record dates, amounts, and income/expense type
- Choose your quarter periods before your first update — can’t change mid-year
- Submit even if you had no income — £0 income is a valid quarterly update
For the full MTD overview, see Making Tax Digital for income tax explained. For the income threshold rules, see MTD qualifying income thresholds. For help with record-keeping, see our receipt sorting guide.