MTD for Self-Employed: What Income and Expenses You Need to Track

If you’re self-employed, Making Tax Digital for Income Tax might sound daunting—but here’s the reassuring truth. You’re probably already tracking most of what HMRC requires. MTD simply asks you to keep those records digitally and report quarterly rather than once a year. For anyone reasonably organised, it’s a small shift, not a major overhaul.

Income you need to record

All money earned through your self-employment counts. This includes fees from clients, sales of goods or services, cash payments, card payments, and bank transfers. If you have multiple self-employed activities, track each income source separately.

What doesn’t count here? Employment income (already reported through PAYE), dividends, savings interest, and pension income are handled separately. MTD for Income Tax focuses specifically on your self-employment and property income.

Expenses you can claim

HMRC allows you to deduct “allowable expenses” from your income—money spent wholly and exclusively for business purposes. The main categories include:

• Office costs: stationery, phone bills, software subscriptions, internet
• Travel: business mileage at 45p per mile (first 10,000 miles), public transport, parking—but never ordinary commuting
• Working from home: either a flat rate (£10–£26 monthly depending on hours worked) or a calculated proportion of household bills
• Professional services: accountant fees, professional subscriptions, legal costs
• Marketing: website costs, advertising, business cards
• Training: courses directly related to your existing business skills
• Equipment: tools, computers, machinery needed for your work
• Stock and materials: anything bought to sell on or use in your products
• Financial costs: business bank charges, insurance premiums, interest on business loans

If something has mixed personal and business use—like a mobile phone—you can only claim the business portion. Keep it honest and proportionate.

What records to keep

For each transaction, record four things: date, amount, category, and a brief description. That’s the core of it.

Beyond that, keep receipts for expenses, copies of invoices you’ve issued, and bank statements showing payments received. Digital photos of paper receipts are perfectly acceptable. HMRC requires you to retain records for five years from the 31 January following the relevant tax year.

Under MTD, these records must be kept in compatible software rather than spreadsheets or shoeboxes. But the information itself? Exactly what you’d track anyway if you wanted to understand your business finances.

Quarterly updates are simpler than they sound

MTD requires four updates per year, due roughly one month after each quarter ends. You’re simply submitting the income and expense totals you’ve already recorded—not preparing a full tax return each time. Corrections can be made in later updates, so perfection isn’t expected on day one.

Your final declaration, confirming everything for the year, remains due by 31 January—the same deadline you’re used to.

The bottom line

If you’re already keeping track of what you earn and spend, MTD won’t transform your life. It formalises good habits, spreads the work across the year, and removes the annual scramble to reconstruct twelve months of finances from memory. Think of it as making official what sensible self-employed people do anyway—just with better tools.