MTD Quarterly Updates: Gross or Net Income?

If you sell through a marketplace, take card payments, or let a property through an agent, the money that lands in your bank account is not what HMRC wants to see in your quarterly update. Fees have already been taken out. The figure you have been handed is net, and Making Tax Digital for Income Tax is built around gross.

This catches out a lot of people in their first year, and it is one of the few MTD mistakes that will not announce itself. Your submission goes through. Your profit looks roughly right. Nothing flags. The error sits quietly in your records until someone looks properly.

Gross or net income for MTD quarterly updates: the short answer

Report gross income — the full amount your customer or tenant paid — and claim the fees separately as an expense. Do not report the net amount that arrived in your account.

So if you sold £10,000 of goods and the platform deducted £1,200 in selling and advertising fees before paying you £8,800:

• Income: £10,000
• Expenses: £1,200 (commission and fees)
• Profit: £8,800

Reporting £8,800 as income with no fee expense produces the same profit. That is exactly why it goes unnoticed. But two of the three numbers are wrong, and turnover is the one that matters most outside your tax bill.

Why understated turnover is the expensive part

Profit is not what the MTD thresholds are measured against. HMRC's qualifying income test uses gross income from self-employment and property, before any expenses are deducted. The same is true of the £90,000 VAT registration threshold.

Work from net payouts and your recorded turnover is understated by the whole value of the fees. On marketplace selling, where fees commonly run at 10-15%, someone reporting £63,000 net may have gross turnover closer to £72,000. That gap can be the difference between believing you are outside a threshold and actually being inside it — and threshold breaches are assessed on the real figures, not the ones you recorded.

Where the net figure creeps in

Almost always through the bank feed. By the time money reaches your account, the deduction has already happened, and a bank feed can only see what arrived. It has no visibility of the fee.

The usual sources:

• Online marketplaces — final value fees, advertising fees and postage costs are netted off before payout, often bundled into a single deposit covering several sales.
• Card and payment processors — a percentage plus a fixed fee per transaction, sometimes settled daily.
• Letting agents — rent arrives after management commission, and frequently after repairs and maintenance the agent has arranged and paid for.
• Freelance platforms — service fees deducted at source, occasionally with currency conversion on top.

Landlords have the hardest version of this. An agent statement can carry three or four separate deductions against one month's rent, and only the balance is transferred. The rent charged to the tenant is the income figure; every deduction is a separate expense line, and some are allowable while others are not.

What HMRC actually expects each quarter

Quarterly updates are summary totals by category for each business you run — not individual transactions. HMRC does not see your invoices or receipts, only the category figures pulled from your digital records.

There is some pragmatism built in for the quarterly stage. As the ICAEW's guidance on MTD for income tax sets out, where records initially capture a net amount, HMRC expects an adjustment to be made to record gross income and the transaction fees before the return is finalised. In other words: the year-end position must be gross, whatever the quarterly figures looked like on the way there.

That flexibility is easy to over-read. Leaving it to finalisation means unpicking twelve months of netted payouts in January, when the fee data may be harder to retrieve and your memory of any given deposit is gone. Doing it quarterly is the same work in quarters.

How to fix it

The correction is straightforward once you stop treating the bank as the source of truth.

1. Download the platform's transaction report. Marketplaces, payment processors and letting agents all produce one. It shows gross sales or rent charged, each fee as its own line, and the resulting payout. This is your source document; the bank statement is only confirmation that the money moved.
2. Reconcile the payout to the gross. For each deposit, check that gross income minus the itemised fees equals the amount received. Anything that does not reconcile is usually a refund, a chargeback or a partial settlement crossing a period end.
3. Put the fees in the right category. Commission and platform fees are usually allowable business expenses. Agent management fees are allowable for landlords; a deduction for a capital improvement is not, and needs separating from ordinary repairs.
4. Check the period boundaries. Standard quarters run 6 April to 5 July, 6 July to 5 October, and so on. A payout received on 8 July for sales made in June belongs to the first quarter, not the second.

Doing it before the deadline rather than after

The first mandatory quarterly update, covering 6 April to 5 July 2026, is due by 7 August 2026. Penalty points are not being issued for late quarterly updates in the first year, which has been widely read as permission to be relaxed about accuracy. It isn't. The soft landing covers lateness, not wrong figures, and the records you build this quarter become the template for every quarter after it.

If your first update goes in on net figures, the second and third almost certainly will too, because nobody rebuilds a working process mid-year. By the time it surfaces you have four quarters to correct instead of one.

The risk with badly prepared data is not that the submission fails. It is that it succeeds, with the wrong numbers inside it.

Getting the figures straight

Most of the work here is data preparation rather than filing: pulling the gross figures out of platform reports, splitting fees into the right categories, catching duplicates where a bank feed and a marketplace export both record the same sale, and arriving at quarterly totals you would be comfortable defending.

That is the step TaxPrepUK handles. You drop in your spreadsheet or export — Excel, CSV, OFX or QIF — and it categorises the transactions, separates gross income from fees, flags duplicates and entries that look mis-recorded, and produces clean quarterly totals along with a report of what changed and why. Those totals then go into whichever HMRC-recognised bridging tool or software you file with. It is not a bridging tool itself and it does not submit to HMRC — it is the step before that step, and everything runs in your browser, so the figures never leave your device.

Whatever you use to get there, the principle does not change: report what your customer paid, claim what the platform took, and keep the two visible separately.