Annual allowances and adjustments in MTD explained

Your quarterly updates show your income and expenses. Things you buy to keep and use in your business, such as tools, machinery or a van, are usually not expenses. You claim capital allowances on them instead.

The annual investment allowance lets you deduct the full cost of most equipment and machinery in the year you buy it, up to £1 million a year. Writing-down allowances spread the cost of other items over several years.

The structures and buildings allowance gives 3% a year on the cost of building or renovating non-residential buildings.

Cash basis is the default for most sole traders and landlords. Under cash basis you claim most equipment as an expense when you pay for it. Cars are the main exception. You claim capital allowances on a car instead, unless you use simplified mileage expenses, which already cover the car.

So if you use the cash basis, you may have no capital allowances to add at all. If you use traditional accounting, equipment goes through capital allowances rather than your quarterly expenses.

The trading income allowance and the property income allowance each let you earn up to £1,000 a year tax free. You can claim the allowance or your actual expenses, not both.

If your income is £1,000 or less, the allowance covers it in full. If it is more, you can deduct £1,000 instead of your expenses. If you use the trading allowance, you cannot claim expenses or capital allowances. The property allowance cannot be used with the tax reduction for residential finance costs or with Rent a Room relief, and it cannot create a loss. Joint owners each get £1,000 against their share of the gross rent.

Landlords cannot usually claim capital allowances on items in a residential let. Instead you can claim the cost of replacing domestic items such as furniture, appliances and kitchenware. The relief covers like-for-like replacements, not the first purchase.

The government announced at Budget 2026 on 28 October 2026 that the trading allowance will rise to £3,000 from 6 April 2027. This is subject to legislation and not yet in HMRC’s guidance.

Adjustments change your profit for the year. Common ones are goods or services you took for your own use, a private use adjustment for a let property, and a balancing charge when you sell an asset you claimed allowances on.

These are different from a BSAS adjustment. A BSAS adjustment changes HMRC’s own summary of your business income and expenses.

Quarterly updates need no accounting or tax adjustments. HMRC expects allowances and adjustments after your fourth update, in your software, before you submit your tax return. You adjust totals for the year, not individual transactions.

In SimpleTaxFlow you can save them at any time in the tax year. Your capital allowance claim is recorded when you save it, but HMRC only processes it when you submit your tax return.

The Allowances & adjustments form has a tab for each business, with an Allowances section and an Adjustments section. Fill in only the boxes that apply.

Sam is a self-employed photographer who uses traditional accounting. In the 2026 to 2027 tax year Sam buys a camera for £2,000. Sam enters 2000 in Annual investment allowance for the business and saves it to HMRC.

If Sam used the cash basis instead, the camera would be an expense in the quarterly updates and there would be nothing to add here.

• Claiming the same equipment twice, once as a cash basis expense and again as an allowance.
• Claiming capital allowances on a car while using simplified mileage expenses for it. The mileage rate already covers the car.
• Using the trading or property income allowance and claiming expenses as well.
• Claiming the cost of replacing domestic items for the first furniture you buy for a let.

After you choose Save to HMRC, you see HMRC accepted the update. Open the form again to check the figures are still there for each business. Then check HMRC’s calculation before you submit your tax return.

• You know whether you use cash basis or traditional accounting
• Equipment bought in the year is claimed once only
• Income allowances are not combined with expenses
• £29.99 + VAT a year. Bookkeeping is free. Pay when you send to HMRC.

Tax rules can change and individual circumstances matter. Use HMRC’s current guidance to confirm the treatment that applies to you.