How to set up FreeAgent to submit your first MTD quarterly update

For many sole traders and landlords, Making Tax Digital (MTD) for Income Tax will mean quickly getting to grips with accounting software so you can submit the required quarterly updates to HMRC. If you are new to accounting software and want to quickly get set up to send your quarterly updates, we’re here to guide you through the essential steps you’ll need to follow to get it done in FreeAgent. 

The good news? If you’re using cash basis accounting, these three steps may be all the admin you need to do at this stage. 

If you’re using accruals basis accounting, these steps are still a good starting point. You will have a couple more steps - but we’ll also point you in the right direction.

Step 1: Record your opening bank balance

If you are finding this step confusing, don’t worry - you’re not alone. “In terms of the setup process, one thing that we’re seeing a lot of people falling over with is opening balances,” says FreeAgent’s Chief Accountant Emily Coltman FCA. “They simply don’t know their opening balances.”

The opening bank account balance you enter into FreeAgent acts as your financial starting point. It should capture how much money is in your business when your FreeAgent records begin.

If this is the first time you have used accounting software, you may be wondering how you can work this out. The good news is that this can be as simple as checking the balance on the primary bank account you use for your business and entering that figure. The trick is choosing the right date on which to check that number - it should be the end of the day before your records start. 

If you’re getting set up for MTD for Income Tax, the start date for your records will typically be the first day of the tax year for which you are reporting. So if you’re preparing your accounts for 2026/27, that would be 6th April 2026. And therefore your opening bank balance would be the balance on your bank statement as at the end of 5th April 2026. 

If you are using the cash basis of accounting, your bank balance is the only opening balance you really need to put in. You can put in other opening balances if you know them, and this article in our Knowledge Base will help you with that. If you don’t know any of your other opening balances, that’s not a problem at this stage. You can edit them at a later date, by following this guide.

If you are using the accrual basis of accounting, you should also include any money you are owed and any money you owe as part of your opening balances, as well as other balances such as any capital assets your business owns. This article in our Knowledge Base will give you fuller instructions on how to do that. 

Step 2. Link your bank account to FreeAgent and explain your transactions

If you’ve never connected your bank account to accounting software before, you’re about to unlock a god-tier time saver. When you go into FreeAgent and enable a bank feed, all your transactions from that account will automatically appear in your FreeAgent records. Much less manual entry! 

If you’re getting set up for MTD for Income Tax, you would set the start date of your bank feed as the first day of the tax year for which you are reporting. So, if you are sorting out your quarterly updates for 2026/27, and you’re reporting standard quarterly update periods, you would set your feed to start from 6th April 2026. This will pull in all your transactions from then until now.

Your next step will be to go through those transactions and explain them. This means choosing the correct transaction Type (e.g. Sales, Money paid to user) and the right Category (e.g. Accommodation and Meals, Office Costs, Drawings). 

You will immediately find yourself in a very good place for your quarterly update, as FreeAgent will automatically pull this information into a format that’s ready to be submitted directly to HMRC.

There’s one more helpful step you can take, if you have paid for any business expenses out of your own pocket (i.e. from another bank account that’s not linked to your FreeAgent account).

Step 3. Add any out-of-pocket expenses

If you have any out-of-pocket expenses - that is, business costs that you paid for from a personal bank account that’s not linked to FreeAgent - you will need to manually enter these into the Expenses section of your FreeAgent account. (This article explains exactly how to do that.) They will then be added to your records and will automatically update your figures, ready for you to send them to HMRC. 

Cash basis accounting? You’re ready to go

For many sole traders and landlords operating on a cash basis, all you will then have to do is navigate in your FreeAgent account to Tax > Income Tax > choose the tax year. Double-check your figures look right in your quarterly update and click ‘Send update to HMRC’, then hit ‘Confirm’. Your quarterly update is away! Once HMRC has processed it - which may take a few minutes - you’ll see that quarterly update showing as ‘Filed’ on the app. (Find out more about sending quarterly updates here.)

Accruals basis accounting? You’re nearly there

If you are using accruals basis accounting, the previous steps will have done a lot of the work to get you ready for your quarterly update. However, to give an accurate picture, ideally you also need to be tracking your invoices as you issue them to your customers, and your bills as you receive them from your suppliers. If you are catching up with historic bookkeeping, follow this guide to help you enter these quickly, and you will then see these figures reflected in your auto-populated quarterly update submission.  

Late sending one or more quarterly updates? 

Don’t worry - for the tax year 2026/27, HMRC will not issue penalties for filing your quarterly updates late. Follow the instructions above and you will be able to submit any quarterly updates you have missed. 

What’s next?

If you continue to stay on top of the steps in this article, you will be in a good position to send your quarterly updates once every three months (FreeAgent will show you when these are due, just check your Tax Timeline).

At the end of the tax year, you will then have to complete an end-of-year update for each of your income streams, if you have more than one. (For example money from multiple sole trades or money from a sole trade and from property.)

Then you will need to send quarterly updates and an end-of-year update for each separate income stream, from separate FreeAgent accounts, as well as one final declaration for all of your income together. Again, you can check when this is due in your FreeAgent Tax Timeline.

12th August 2026