How much should you set aside
for your tax bill each month?

How MTD quarterly updates work – deadlines and what to submit

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) requires sole traders and landlords with qualifying income above £50,000 to submit four quarterly updates to HMRC each year, starting from April 2026. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Each quarterly update reports your income and expenses for that period using MTD-compatible software.

Quarterly updates are not tax returns – they are digital summaries of your business activity. HMRC uses them to build a running picture of your tax position throughout the year. After all four quarterly updates, you submit an End of Period Statement (EOPS) confirming your annual figures, followed by a Final Declaration that replaces the traditional Self Assessment return.

How payments on account work – January and July

If your Self Assessment tax bill exceeds £1,000 and less than 80% of your tax was collected at source (e.g. through PAYE), HMRC requires you to make two advance payments towards the following year's tax. Each payment on account is 50% of your prior year's Self Assessment liability.

The first payment on account is due on 31 January (at the same time as the balancing payment for the previous year). The second is due on 31 July. This means that in your first year of self-employment, your January bill can be 150% of your expected liability: the full prior year balance plus the first 50% advance payment.

How to calculate your monthly savings target

The simplest approach is to estimate your annual tax bill and divide by 12. If your estimated total liability (income tax + Class 4 NI + any student loan repayments) is £12,000, you need to save £1,000 per month into a separate tax savings account. This ensures you have the full amount ready when the bill arrives on 31 January.

Worked example: A sole trader with £45,000 net profit in 2025/26. Income tax on £45,000 (after £12,570 personal allowance) is £6,486. Class 4 NI at 6% on £32,430 is £1,945.80. Total liability: £8,431.80. Monthly savings target: £702.65. Setting aside £703 per month from April means the January 31 bill is fully covered – with no cash flow shock.

If you also need to make payments on account, add those to your monthly target. For the example above, if payments on account of £4,215.90 each are also due, the true annual cash requirement is £16,863.60 – or £1,405.30 per month. This is why the quarterly planner above shows both the tax bill and the payment on account impact.

Common mistakes with quarterly tax planning

Quarterly planning is the most effective defence against unexpected tax bills. These are the five mistakes that catch sole traders most frequently – especially those in their first or second year of self-employment.

Treating quarterly updates as final tax returns. MTD quarterly updates are estimates – they do not finalise your tax liability. The final calculation and balancing payment still happen via Self Assessment on 31 January. Many people submit quarterly updates and assume their tax is settled for the year.

Not accounting for payments on account. If your previous year's tax bill exceeded £1,000, HMRC requires two payments on account – 50% on 31 January and 50% on 31 July. These advance payments are often forgotten when budgeting, creating a cash flow crisis in July.

Missing the 5 October registration deadline. New self-employed individuals must register for Self Assessment by 5 October following their first year of self-employment. Missing this can result in a late registration penalty.

Under-saving because of one good quarter. Tax on self-employment income is calculated on total annual profit – not quarter by quarter. A strong Q1 followed by weaker quarters does not reduce the tax on Q1 earnings. Set aside a percentage from every payment received, not just at year-end.

Not submitting a correction when income changes significantly. If mid-year income differs significantly from the prior year's amount used to set payments on account, you can apply to reduce payments on account via Self Assessment online. Overpaying earns no interest from HMRC – reclaim it.

Key MTD and Self Assessment deadlines for 2025/26

Keeping track of every deadline is critical to avoiding the points-based penalty system that HMRC applies to late MTD submissions. Each late quarterly update earns one penalty point. Once you accumulate four points, a £200 financial penalty is triggered, with each subsequent late submission attracting a further £200. Points expire after 24 months of full compliance.

For Self Assessment, the 31 January online filing deadline remains. Missing it triggers an automatic £100 penalty even if no tax is owed. After three months, daily £10 penalties accrue (up to £900). At six months, a further 5% of the tax owed or £300 (whichever is greater) is charged. Interest on late payment currently runs above 7%.

The quarterly planner above factors in all of these deadlines, showing you exactly when each submission is due and how much to save each month. By setting a standing order into a dedicated tax savings account from the start of the tax year, you turn an annual surprise into a managed monthly commitment. TapTax automates the quarterly submission process and tracks your running tax liability in real time.