Declaring expenses under Making Tax Digital for Income Tax: common questions
Making Tax Digital for Income Tax (MTD IT) has been in force since April 2026 for those with over £50,000 gross annual income from self-employment and/or property rental. While the tax rules themselves are not new, how income and expenses are reported has changed, which can cause confusion..
Drawing on experience from the early months of MTD IT, here are some of the most common questions and misassumptions around expenses, and how to approach them.
What expenses need to be included in quarterly updates?
A common concern is whether quarterly updates need to be “perfect.” They do not. Quarterly submissions are meant to provide HMRC with a regular snapshot of your income and expenses figures for the year to date, not a final tax calculation. As they are year-to-date summaries, you can make adjustments in the next quarter’s return.
In completing your quarterly update, you should include your business and/or property income and your allowable expenses for the year to date, based on the records you have at the time.
Some items, such as year-end adjustments, allowances and reliefs, income from investments, pension contributions, bank interest and capital gains tax liabilities, are dealt with in your final year-end annual declaration rather than each quarter.
Don’t forget that quarterly updates are cumulative and can be corrected. If something is missing or later turns out to be incorrect, it can be adjusted in a later update or at year end.
What counts as an allowable expense?
Another common pitfall is uncertainty about what can be claimed as an expense. In simple terms, allowable expenses under MTD IT are costs that are incurred wholly and exclusively for your business or property rental activity.
Typical examples include:
- Office or business running costs
- Travel costs related to work
- Professional fees
- Advertising and marketing
- Letting agent fees and property running costs for landlords
Costs that have a personal element, or that are purely private, are not allowable. Where an expense is partly business and partly personal, only the business proportion can be claimed.
HMRC guidance sets this out in detail, but the principle is consistent - if the cost is not necessary for your business or property income, it is unlikely to be allowable. Check out HMRC’s guidance here:
Can you use the annual expenses allowance?
For some people, especially those with simple affairs, claiming the annual expenses allowance may be easier than recording and apportioning every cost.
This allows you to claim a fixed amount for certain expenses instead of working out the exact business proportion. Whether this is worthwhile depends on your circumstances. For some, it simplifies record-keeping. For others, particularly where business use is high, claiming actual costs may result in a better outcome.
You can choose which approach to use, but it is important to understand the difference and to apply it consistently.
Common mistakes to avoid
A few themes come up repeatedly:
- Assuming quarterly updates must be final and exact
- Including non-allowable personal costs as expenses
- Forgetting to separate business and personal use
- Not realising that some adjustments are made at year-end rather than quarterly
MTD IT does not change the underlying tax rules, but it does make good record-keeping more important. Having a clear view of what you are claiming, and why, will make the process much smoother.
See our MTD IT-friendly software in action
How to add & submit income & expenses via a spreadsheet upload video
How to add income & expenses manually in TaxNav video
How to get MTD-IT ready
If you haven't started yet, don't panic. Focus on these basics as, once those are in place, everything else follows naturally.
- Confirm if your gross income will trigger the MTD IT rules with HMRC's page
- Register with HMRC for MTD IT before you begin.
- Select your software - TaxNav offers a 30-day free trial
- Start keeping and recording your digital records - for example, directly into our software or in a spreadsheet using our bridging software. Until your final return, this does not need to be 100% accurate.
- Diarise when you need to submit your quarterly updates, TaxNav will remind you.
- Diarise your final (annual) declaration deadline
People with income over £30,000 from self-employment and/or property will need to join MTD IT from April 2027. You can, however, volunteer to join early and get familiar with it before your HMRC deadline.
With TaxNav you automatically get a 30-day free trial and we offer low-cost subscriptions to keep things affordable. An annual subscription is £60+VAT or pay as you go for £6+VAT per month.
Explore and try out our user-friendly MTD IT software