Adjust your self-employment and property income

How and when to make adjustments before you submit your tax return.

Throughout the year, you need to correct your digital records to make sure they are accurate, if you become aware of an error.

Once you have sent your fourth quarterly update, HMRC will have details of all your self-employment and property income and expenses. This is for every business that you have, for the tax year.

Using your software, you may then need to adjust the data you have sent, before you complete and submit your tax return. This could include:

• claiming reliefs or allowances that reduce the amount of your self-employment or property income that is taxable, such as the trading income allowance
• making tax adjustments, such as removing expenses that you cannot claim, also known as disallowable expenses
• making accounting adjustments, such as for prepayments or accruals
• making adjustments because of your chosen accounting period
• claiming capital allowances that let you deduct the cost of capital assets, such as plant and machinery

Claiming reliefs or allowances

You may be able to claim reliefs or allowances that will reduce how much Income Tax you owe.

Rent-a-Room relief

The Rent-a-Room relief lets you earn up to £7,500 per year, tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

If you intend to use the relief, you can create digital records of the Rent-a-Room income during the tax year, which will be included in each quarterly update. The relief will cover up to £7,500 or is halved if the property is shared, when you create these digital records.

Making adjustments

You will make most adjustments by updating the annual total for an expense category in your software.

This means that if you have created multiple digital records that relate to the same category, you will not need to adjust each individual transaction.

Tax adjustments

You will need to make tax adjustments by adjusting the annual total of your expenses.

For example, if you have one phone for business and personal use, you will need to reduce the category total for ‘phone, fax, stationery and other office costs’, so that you’re only claiming the expenses that were used in relation to your business.

Accounting adjustments

Cash basis is the default accounting method for self-employment and property income. You do not need to make these adjustments if you use cash basis.

If you choose to use traditional accounting, your software will allow you to adjust the annual totals from your quarterly updates to address accounting adjustments, such as for prepayments or accruals.

Example of an adjustment for a prepayment

You may pay £1,200 in January for a 12-month insurance policy. Instead of recording the full cost in January, you may choose to spread this expense over 12 months, at £100 per month. This would mean one quarter of the expense falls into the first tax year, and three quarters into the next.

To do this, you would reduce the category total for ‘rent, rates, power and insurance costs’ for the first tax year to £300 and increase it for the next to £900, to reflect the portion of the expense that relates to each tax year.

Example of an adjustment for an accrual

You have received services from a consultant in March 2026 but have not yet been invoiced. To reflect the costs you have incurred, you may want to record an accrued expense (an accrual) in that tax year (2025 to 2026). This means your expenses will be matched to the same tax year even if you’ve not yet paid for the service.

Adjustments you need to make because of your chosen accounting period

Your accounting period is the period that your books or accounts cover. If your accounting period aligns with the tax year (6 April to 5 April), then you do not need to make any of these adjustments. Your software will also automatically default to an accounting period that aligns with the tax year.

If your accounting period does not align with the tax year, then you will need to adjust your totals for self-employment or property income and expenses, or confirm that no adjustment is required.

If your accounting period runs from 1 April to 31 March

The adjustments you need to make depend on when you started using Making Tax Digital for Income Tax and whether you selected calendar update periods in your software.

If you started in 2025 to 2026 tax year and selected calendar update periods

If you signed up to test the service in 2025 to 2026, then you need to make an adjustment after the end of that tax year. This is to add in your income and expenses from 1 to 5 April 2025, so that they are included in your tax return for 2025 to 2026.

To make the adjustment, you will need to take the following steps:

1. Review your records for the period from 1 to 5 April 2025 (inclusive).
2. Total your self-employment and property income and expenses for that period, for each category that you used.
3. Include these amounts in your annual totals for 2025 to 2026 for these categories of income and expenses. You will not need to do this for future tax years if you continue to use calendar update periods, as your software will now be set up got your accounting period.

If you started in 2026 to 2027 tax year and selected calendar periods

If you started in 2026 to 2027 and selected calendar update periods in your software, then you will not need to make this type of adjustment after the end of the tax year.

If you forgot to select calendar update periods, you’ll need to make adjustments after the end of that tax year. Further guidance will be published at a later date.

If your accounting period ends on 1, 2, 3 or 4 April

Special rules apply automatically to treat your income and expenses for the days between your accounting date and 5 April (inclusive) as falling into the next tax year. You can find out more about late accounting date rules.

Whether you use standard update periods or quarterly update periods, your digital records will cover a period that is different from your accounting period. You will need to make adjustments to ensure that your annual income and expense totals match your accounting period and to make sure the special rules are applied correctly.

For example, your accounting period runs from 3 April 2026 to 2 April 2027 but you use calendar update periods that run from 1 April 2026 to 31 March 2027. You will need to make the following adjustment to your 2026 to 2027 annual totals:

• remove income and expenses for 1 and 2 April 2026
• add income and expenses for 1 and 2 April 2027

If your accounting period ends on any other date

You’ll need to use your compatible software to make additional adjustments after the end of the 2026 to 2027 tax year. For example, if your accounting period runs from 1 January 2026 to 31 December 2026.

We will set out guidance in the future to explain how to make these adjustments.

Capital allowances

Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax.

You will need to use your software to record your capital allowance claim before you submit your tax return. Your software may be able to record your claim during the tax year, but HMRC will not process your claim until you have submitted your tax return.

What to do next

You should then complete your tax return by reporting any losses you have, adding other sources of income and gains, checking the information and submit your tax return using your compatible software.

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