Spreadsheet for MTD: how to send a quarterly update from it

Making Tax Digital for Income Tax changes how sole traders and landlords keep records and report to HMRC. Instead of one Self Assessment return a year, you keep digital records and send a quarterly update for each business, then submit a tax return after the year ends.

Many people already keep their books in a spreadsheet, and HMRC’s guidance says you can continue to use spreadsheets for your records. What a spreadsheet cannot do on its own is talk to HMRC. For that you need software that connects your existing records to HMRC and makes the submissions. HMRC says this is sometimes referred to as bridging software.

HMRC does not provide software itself. You choose a commercial product that works with Making Tax Digital for Income Tax, and HMRC’s software finder lists products that have been through its recognition process. HMRC does not recommend any of them.

A digital record is a record of income or an expense. HMRC says each one needs the amount, the date and a category, and Making Tax Digital uses the same categories of income and expenses as Self Assessment. A row with only a supplier name and an amount is not enough.

HMRC lists what you need to record. For self-employment, that is your sales, takings and fees, and your business expenses. For property, it is rent, lease premiums, reverse premiums and inducements, and your property expenses.

The way you split your spreadsheet matters too. HMRC expects one set of records for each sole-trade business, with a separate quarterly update for each. All your UK properties form one UK property business, including your share of any jointly let properties. Foreign property needs separate records for each property, combined into one foreign property update.

• One row per income or expense, with the date, the amount and the category.
• A separate sheet, or a clear column, for each business you run.
• All UK properties together as one UK property business.
• Only your share of income and expenses for jointly let property.

If you need to categorise in full, your spreadsheet should use the categories HMRC asks for in a self-employment quarterly update. Income is split into turnover and other business income. Expenses fall into the 13 categories listed below.

HMRC also allows what it calls simpler categorisation. If a self-employment business has turnover under £90,000, a sole trader only needs to record whether each transaction is income or an expense, and the update sends total income and total expenses. The test is per income source. Landlords with UK property turnover under £90,000 can do the same, but residential landlords must still record finance costs such as mortgage interest separately. If you are unsure whether you will reach £90,000, HMRC says to categorise in full.

• Cost of goods
• Construction industry payments to subcontractors
• Wages
• Car, van and travel
• Rent, rates, power and insurance
• Repairs
• Phone, fax, stationery and office
• Advertising
• Business entertainment costs
• Interest on loans
• Bank and financial charges
• Professional fees
• Other

When you use more than one product, for example a spreadsheet and bridging software, HMRC says the records must be digitally linked. That means figures move from one place to another digitally, not by someone reading them and typing them in again.

HMRC gives examples of links that count. They include linked spreadsheet cells and formulas, emailing a spreadsheet for import, and XML or CSV importing and exporting, including downloading and uploading files. Retyping into another cell or product does not count, and nor does copy and paste or cut and paste.

Quarterly updates are summaries, not tax returns. HMRC says you do not need to make any accounting or tax adjustments before sending one, and HMRC receives no individual receipts or invoices. It receives a total for each category you used.

Each update is cumulative. It covers the tax year to date, from the start of your update periods to the end of the current one. That start is 6 April for HMRC’s standard periods, or 1 April if you chose calendar update periods, so your spreadsheet totals should always run from that date. If nothing happened in a period, HMRC still expects an update.

1. 1Record each transaction as close to the date as you can, and in any case before the update deadline or before you send the update, if that is earlier.
2. 2Check that every row has a date, an amount and a category, and that the right business is selected.
3. 3Total each category from the start date shown on your update, 6 April or 1 April for calendar update periods, to the end of the update period.
4. 4Import the file into your bridging software, so the figures move by a digital link.
5. 5Check the figures the software will send to HMRC, then send the update by HMRC’s deadline for that period.

Here is a fictional sole trader who runs a small gardening business and keeps every transaction in a spreadsheet. They use standard update periods, so the first period ends on 5 July and the second on 5 October.

The second update includes the figures from the first and adds the months since. It shows the whole tax year so far, not just July to October. That is also why a mistake found in the first period can simply be corrected in the next update.

Because updates are cumulative, HMRC says a correction made during the tax year is fixed when you send your next quarterly update. You correct the row in your spreadsheet, and the corrected total goes in the next update.

After the fourth update, you either resend it or adjust the category total in your software before you submit the tax return. HMRC also says that once a record has been sent in an update, you must not move it by hand into another product.

Keep your spreadsheet and your original documents, such as bank statements and invoices. HMRC says to keep digital records for at least 5 years after the 31 January submission deadline for the tax year.

HMRC suggests checking that a product covers all your income sources, can send both quarterly updates and the tax return, fits your accounting period, and suits your budget. Free products exist, but HMRC notes they may have limits. You can use more than one product, but only one product for each separate submission.

Check how the product takes in your spreadsheet. SimpleTaxFlow, for example, lets you download a totals template from your quarterly update or import a self-employment CSV, and uploading again replaces the last upload for that business and tax year. Whatever you choose, look for an import, not a form you fill in by hand.

Tax rules can change and your circumstances matter. Use HMRC’s current guidance to confirm what applies to you.