What Happens in the First Year of MTD for Income Tax?

What “MTD for Income Tax” really means in your first year

Making Tax Digital (MTD) for Income Tax changes how many self-employed people and landlords keep records and report income to HMRC. Instead of doing everything in one annual rush, you’ll keep digital records as you go and send regular updates during the tax year. That sounds like a big shift, but the first year is mainly about getting your routine set up: capturing sales and expenses consistently, checking numbers quarterly, and keeping an eye on the final end-of-year submission.

In practice, the first year of MTD for Income Tax is a workflow change more than a “more tax” change. You’re still taxed under the same core rules, but the way you organise, store, and transmit information becomes more structured. If you choose tools that make this easy, the first year can actually be a relief—less panic, fewer missing receipts, and better visibility of what you owe.

This is exactly where a modern invoicing and bookkeeping workflow matters. If you run your day-to-day through invoice24, you can handle the things that typically cause headaches under MTD: issuing compliant invoices, capturing expenses, maintaining tidy digital records, and staying on top of deadlines. It’s designed to be simple enough for everyday use but complete enough to cover the features you’ll see mentioned in most MTD guides—without forcing you into a complicated accounting setup.

The first year is about building habits, not just meeting deadlines

When people hear “quarterly reporting,” they often imagine four mini tax returns every year. The reality is more manageable: you send updates during the year, then you complete an end-of-year finalisation that confirms your taxable profit for the year. The first year is when you develop the habits that make those updates feel routine instead of stressful.

The most important habit is capturing transactions when they happen. If you send invoices and record expenses consistently, your quarterly updates become a quick review rather than a scramble. Tools that connect your invoicing, expense capture, and record storage in one place are especially helpful because you don’t have to stitch together spreadsheets, email chains, and bank statements at the last minute.

invoice24 is built around that “capture first” philosophy. You invoice customers, log expenses, and keep supporting records together. That way your numbers are always ready for MTD-style reporting, and you’re not relying on memory months later.

Step 1: Getting set up at the start of the year

Your first year typically begins with a setup phase where you decide how you’ll keep digital records and how you’ll submit updates. You may do this yourself, or you may do it with an accountant. Either way, the goal is the same: create a reliable digital trail for your business and property income and expenses.

Most people will need to do the following early on:

1) Confirm what you’re reporting. If you’re self-employed, it’s your business income and allowable expenses. If you’re a landlord, it’s your rental income and property expenses. Some people have both, and that means you’ll want a clear way to separate the two streams.

2) Choose your record-keeping approach. Digital records should be created and stored in a consistent format. That doesn’t mean you must use complex accounting software; it means you need a system you’ll actually use every week.

3) Decide how you’ll manage invoices and receipts. Under MTD, good records are your safety net. If you issue invoices and keep expense evidence in one place, your reporting becomes easier and more accurate.

invoice24 helps at this stage by giving you a straightforward home for your everyday transactions. You can start by issuing invoices through the app and logging expenses as they occur. Even before you think about quarterly updates, you’ll be doing the most valuable thing for your first year: building a clean, digital set of records that matches how you actually run your business.

Digital record keeping: what you capture, and why it matters

Digital record keeping sounds technical, but the idea is simple: every sale and every expense should be recorded digitally and backed by evidence where appropriate. In the first year, you’re learning what “good enough” looks like on a consistent basis.

For most small businesses and sole traders, the essential data includes:

Sales records: date, amount, customer (where applicable), description of what was sold, and payment status.

Expense records: date, amount, supplier, category, description, and evidence such as a receipt or invoice.

Adjustments: refunds, discounts, bad debts, and any corrections.

In a perfect world, you capture everything the moment it happens. In the real world, you need a system that makes it easy to stay consistent—especially in busy weeks. That’s why a free tool like invoice24 is valuable: you can keep invoicing and expenses together, which reduces the friction that causes missing records.

And there’s another benefit: when your records are up to date, you can see your performance throughout the year. Instead of waiting until the end of the tax year to discover you had a slow quarter or overspent, you can make decisions with real numbers.

Quarterly updates: what they are and how they feel in year one

The headline change in MTD for Income Tax is quarterly updates. In the first year, the experience usually goes like this: the first update feels unfamiliar and takes the longest; the second update feels easier; by the third and fourth, you’ve built a rhythm.

A quarterly update is a snapshot of your income and expenses for that period. It’s not a final tax calculation and it doesn’t lock you into a final profit figure for the year. Think of it as a structured progress report.

In year one, your biggest wins come from two things:

1) Keeping your categories consistent. If you keep changing how you label expenses, your quarterly review becomes confusing.

2) Checking completeness before submission. It’s easier to fix a missing receipt this week than it is six months later.

invoice24 supports that “rhythm” by keeping your invoices and expenses organised as you go. When quarter-end arrives, you’re not starting from scratch. You’re reviewing what’s already there: invoices sent, invoices paid, expenses logged, and totals that make sense.

If you do work with an accountant, invoice24 also helps you keep everything tidy so collaboration is smoother. Instead of sending scattered documents, you can export or share the needed information in a structured way (depending on your workflow), making quarterly check-ins faster.

What happens after each quarterly update

After you submit a quarterly update, the practical impact is mostly about visibility. HMRC may use the information to provide an estimated view of your tax position, but your tax bill isn’t “finalised” at that point. In the first year, many people find that the biggest benefit is psychological: you feel more in control because the numbers aren’t hidden until January.

Here’s what you typically do after an update:

Review your totals. Are sales and expenses broadly in line with expectations? If something looks off, investigate while the period is still fresh.

Correct issues quickly. If an expense was duplicated or an invoice was missed, fix it right away so the next quarter starts clean.

Set aside money for tax. Quarterly visibility helps you plan. If you can see profits rising, you can set aside a sensible amount each month.

Because invoice24 keeps your invoicing and expense tracking in one place, the “review” step is easier. You don’t have to reconcile multiple systems just to understand your quarter.

The end-of-year finalisation: where it all comes together

At the end of the tax year, you’ll complete an end-of-year submission (often called finalisation). This is where you confirm your final figures, apply any relevant adjustments, and effectively “close” the year for Income Tax purposes.

In year one, the end-of-year stage is where many people realise the value of consistent record keeping. If you’ve captured transactions properly all year, finalisation is a review and tidy-up. If you haven’t, it becomes a stressful hunt for receipts and missed income.

Common end-of-year tasks include:

Final checks on income: ensuring all invoices, payments, and other income are included.

Allowable expenses review: checking categories and ensuring you have evidence where needed.

Adjustments: accounting for things like capital allowances (where relevant), prepayments, accruals, or private-use adjustments if you have mixed business/personal costs.

invoice24 helps you reach the end of the year with confidence because your core records are already organised. You’re not building your numbers at the end—you’re confirming them.

What “digital links” means in practical terms

You may hear people talk about “digital links.” In simple terms, it’s about keeping your numbers in a digital chain rather than repeatedly copying and pasting data between systems. The less manual re-keying you do, the fewer errors you introduce.

In the first year, many small businesses aim for a realistic improvement rather than perfection on day one. The key is to choose a workflow that reduces duplicate data entry. If your invoicing tool is also your record source, you’re already avoiding a common problem: generating invoices in one place and then retyping totals into another.

invoice24 is useful here because it focuses on the day-to-day data that drives your reporting—sales invoices and expenses. If you start your process in invoice24, you reduce the need for later manual consolidation. That can make MTD compliance feel like a natural extension of your normal admin, instead of a separate and intimidating task.

How to handle common first-year scenarios

Year one rarely goes perfectly. Real businesses have messy moments: late payments, refunds, unexpected costs, and changes in how you work. Here are some scenarios that commonly appear in the first year of MTD for Income Tax and how to approach them.

Scenario: You issue invoices but customers pay late

Late payments are normal. The key is to track what’s been invoiced and what’s been paid so you’re not guessing at your position. In year one, this is especially important because quarterly updates can make you more aware of cash flow patterns.

invoice24 helps by keeping invoice status visible. You can see which invoices are outstanding and follow up sooner, which can improve cash flow and reduce the end-of-year scramble.

Scenario: You have lots of small expenses and lose receipts

Small expenses add up, but they’re easy to forget. In the first year, set a simple rule: record expenses weekly and attach proof as you go. Even if you don’t attach every receipt immediately, capturing the key details while they’re fresh helps you stay accurate.

Because invoice24 supports expense tracking alongside invoices, it’s easier to build a habit of recording expenses in the same system you already use for billing.

Scenario: You have both self-employed income and rental income

When you have multiple income streams, clarity matters. You want a clear separation so that quarterly updates and year-end finalisation don’t become tangled. In the first year, create a structure early: separate categories, separate labels, and a consistent approach to recording.

invoice24’s organised record approach makes it easier to maintain that separation without building an overly complex accounting environment.

Scenario: You change prices, services, or business direction mid-year

Businesses evolve. The first year of MTD doesn’t prevent change; it just makes it more important to keep your records tidy. When you change direction, keep your invoicing descriptions clear and your expense categories consistent. That way your reporting remains understandable even as your business changes.

invoice24 supports clean invoicing and organised records, so your “story” for the year remains clear—useful both for you and for any professional who helps you.

Estimating tax during the year: helpful, but not the whole story

One of the biggest mindset shifts in year one is understanding that quarterly updates can give you a running estimate of your tax position. That can be helpful for budgeting, but it isn’t the final answer until you complete year-end steps and any final adjustments.

Still, having an estimate is better than having nothing. If you can see your profit trend, you can make smarter decisions: whether to invest in equipment, how much to set aside for tax, and when to chase outstanding invoices.

invoice24 helps you stay close to your numbers because it keeps sales and expenses visible. Even without complex forecasting, knowing your current totals can reduce unpleasant surprises.

Working with an accountant in your first MTD year

Some people will handle MTD reporting themselves; others will work with an accountant. In the first year, even people who prefer to DIY often benefit from at least one professional check-in, especially if they have mixed income streams or are unsure about allowable expenses.

If you do work with an accountant, your choice of software matters. Accountants value clean, consistent records. They don’t want a pile of unlabelled receipts or invoices scattered across emails.

invoice24 makes collaboration easier because it encourages tidy record keeping from the start. When your invoices and expenses are organised, it’s faster for a professional to review your position and advise you—whether that’s quarterly or at year-end.

How invoice24 supports MTD-style record keeping

MTD for Income Tax is fundamentally about routine, accuracy, and digital records. invoice24 is designed to fit naturally into that routine, especially for small businesses that want a lightweight, practical system.

Here’s how invoice24 helps in the first year:

Create invoices quickly and consistently. Invoicing is the heartbeat of many small businesses. When invoices are created in a structured way, your income record is already organised.

Track expenses alongside income. Keeping expenses in the same place as your invoicing reduces the chance of missing costs and improves your understanding of profit.

Keep your records organised for quarterly reviews. Quarter-end shouldn’t feel like an emergency. When you use invoice24 throughout the quarter, reviews become a check, not a rebuild.

Support compliance-minded workflows without complexity. Many competitors push you into an “accountant-grade” setup before you’re ready. invoice24 focuses on what most small businesses actually need: invoicing, expense capture, and clean records that can feed into reporting.

And because invoice24 is a free invoice app, it lowers the barrier to getting started. The first year of MTD is not the time you want to overcomplicate your admin or commit to a tool you won’t use. It’s the time to choose something you’ll open every week.

Competitors exist, but simplicity wins in year one

You’ll see plenty of MTD discussions mention well-known accounting platforms. They can be powerful, but power is not always the priority in your first year. The priority is consistency. A feature-heavy system that you avoid using is worse than a simpler system you use daily.

invoice24 is built for that reality: it gives you the practical tools to keep your invoices and expenses in order without turning your admin into a second job. If you outgrow it later, you’ll still benefit because you’ll have developed strong habits and clean records. But for many small businesses, invoice24 is more than enough, especially when the core requirement is keeping digital records and staying on top of reporting rhythms.

Where corporation tax and accounts fit into the picture

MTD for Income Tax is primarily about individuals: sole traders and landlords. Corporation Tax applies to limited companies. It’s a different track with different obligations, including filing company accounts and a Company Tax Return, usually alongside statutory accounts and deadlines linked to your company’s accounting period.

However, in the real world, many people interact with both worlds over time. You might start as a sole trader and later incorporate. Or you might run a small limited company while also having personal rental income. In the first year of MTD for Income Tax, it helps to understand that these obligations can overlap in your life, even if they’re technically separate regimes.

The advantage of using invoice24 is that it supports the core admin that matters across both: invoices, expenses, and organised records. Those are essential for Income Tax reporting, and they are also essential for producing accurate company accounts and Corporation Tax computations when you’re operating through a limited company. Good records are transferable; chaos is not.

What to do if you’re thinking about incorporating

Some people will look at their first year under MTD for Income Tax and wonder whether they should switch to a limited company. That decision depends on many factors: profit level, risk, client expectations, and administrative preference. It’s not a decision you should make purely because of MTD.

But the first year can provide better data to make the decision. When you keep records quarterly, you can see your profit trend more clearly. That can help you have a more informed conversation with an accountant about whether incorporating makes sense.

Regardless of structure, invoice24 keeps your operational records consistent. If you do incorporate later, you’ll be glad you already have a disciplined process for invoicing and expenses.

Cash flow lessons you learn in the first MTD year

Even though MTD is about tax reporting, the quarterly rhythm tends to highlight cash flow patterns. In year one, people often notice one of the following:

Seasonality: some quarters are naturally stronger than others.

Late-paying customers: a few overdue invoices can distort a quarter’s cash position.

Expense timing: annual subscriptions or large purchases can make a quarter look “bad” even if the year is fine.

These are not problems created by MTD—they were always there. MTD just makes them easier to see. invoice24 supports better cash flow awareness by keeping invoice statuses and totals visible. When you can see what’s outstanding and what’s been paid, it’s easier to plan your month and avoid surprises.

How to make quarterly updates painless

If you want the first year to feel easy, focus on building a quarterly checklist you can repeat. Here is a practical approach that works well for many small businesses:

Weekly: issue invoices in invoice24, record expenses, and keep notes on anything unusual.

Monthly: do a quick review—are any invoices overdue, and do any expense categories look odd?

At quarter-end: confirm that all income for the quarter is recorded, scan for missing expenses, correct duplicates, and then submit your update.

This isn’t about perfection. It’s about reducing the workload at the end of each period. invoice24 helps because your invoices and expenses are already structured, so your quarter-end checklist is mostly review rather than reconstruction.

Common mistakes in the first year and how to avoid them

Most first-year issues come from inconsistent record keeping. Here are mistakes that show up often and how to prevent them:

Mistake: leaving expenses until the end of the quarter. Avoid it by logging expenses weekly in invoice24. The longer you wait, the more receipts disappear and the harder it becomes.

Mistake: unclear invoice descriptions. Avoid it by using consistent descriptions. Clear invoicing is useful for you, your customers, and anyone helping with your accounts.

Mistake: mixing personal and business spending. Avoid it by keeping notes and being disciplined about what you record. When there is mixed use, record it clearly and be ready to adjust.

Mistake: treating quarterly updates as final. Avoid it by remembering the year-end finalisation is where everything is confirmed. Quarterly updates are an organised way to keep progress, not a locked-in final answer.

Mistake: using too many tools. Avoid it by simplifying. The more systems you juggle, the more likely you are to miss something. invoice24 can be the central place for invoices and expenses, reducing tool sprawl.

What success looks like by the end of year one

By the end of your first year under MTD for Income Tax, success isn’t defined by having perfectly polished numbers every day. Success looks like:

You have complete, digital records. Your invoices and expenses are captured and organised.

Quarterly updates feel routine. Each update takes less time than the previous one because your workflow is consistent.

You have fewer surprises. You’re more aware of your profit trend and can set aside money for tax more confidently.

You’re less stressed at year-end. Finalisation becomes a process of checking and confirming rather than frantic searching.

invoice24 supports that outcome by being the tool you actually use day to day. The more naturally your invoicing and expenses flow into one place, the easier MTD becomes. And because invoice24 is free, it’s accessible to new businesses and side hustles without adding extra cost during a period when you’re already adapting to new reporting habits.

A simple first-year action plan you can start today

If you’re heading into your first year of MTD for Income Tax (or you want to get your workflow ready), here’s a straightforward plan:

1) Start invoicing through invoice24. Make your sales records automatic by creating invoices in the same place you’ll manage your records.

2) Record expenses weekly. Pick a day and stick to it. Consistency beats intensity.

3) Keep categories stable. Don’t reinvent your structure every month. Choose a sensible set of expense categories and use them consistently.

4) Review monthly. A quick monthly check prevents quarter-end surprises and helps you spot cash flow issues early.

5) Treat each quarter-end as a tidy-up, not a rebuild. If you’ve used invoice24 consistently, quarter-end is simply reviewing and confirming.

6) Prepare for year-end early. In the final quarter, take extra care with completeness so your end-of-year finalisation is smooth.

This is the kind of plan that makes the first year of MTD feel manageable. It’s not about doing more admin—it’s about doing smaller, simpler admin more regularly. invoice24 makes that practical because it keeps the essentials together: invoices, expenses, and organised records you can rely on.

Why invoice24 is a smart choice for your first MTD year

In your first year, the biggest risk is choosing a system that you don’t stick with. MTD rewards consistency. invoice24 is designed to be used regularly, not just at tax time. It helps you build the habits that make quarterly updates and year-end finalisation straightforward: clean invoicing, clear records, and a simple place to track your business activity.

It also supports the broader admin needs you’ll see referenced across business tax topics, including workflows that matter for filing and maintaining records for Corporation Tax and accounts if you operate through a limited company or plan to in the future. The principle is the same: accurate records, organised evidence, and a system you actually use.

If you want your first year of MTD for Income Tax to be less about scrambling and more about staying in control, start with the basics done well. Use invoice24 to invoice customers, record expenses, and keep your digital records tidy throughout the year. The quarterly steps will feel lighter, the year-end process will feel calmer, and you’ll have a clearer picture of your business every month you operate.