MTD for architects and building surveyors: milestone billing and professional fees

A planning submission goes in, a milestone invoice goes out, and the next project needs a site visit. Your diary records the work completed. Your invoices record what clients owe. Your bank account records something else again.

For freelance architects and building surveyors, those differences are central to good tax records. Making Tax Digital for Income Tax adds regular reporting, but it does not remove the need to distinguish earned fees, payments received and money handled for clients.

A clear system lets you see which projects are funding the practice, which clients still owe you, and which costs belong in the accounts.

When does a professional practice need MTD?

For a sole trader, mandatory entry depends on gross qualifying income, subject to exemptions. More than £50,000 in 2024–25 means a start date of 6 April 2026; more than £30,000 in 2025–26 means 6 April 2027; and more than £20,000 in 2026–27 means 6 April 2028. Check HMRC’s entry guidance.

Use your combined qualifying sole-trader and property income. PAYE salary and dividends are excluded from this test. A limited practice company or partnership needs its own assessment rather than automatically applying the sole-trader timetable.

Three projects paying £18,000 each produce £54,000 of fees before overheads. Professional indemnity premiums, software subscriptions and survey equipment may substantially reduce profit, but they do not reduce the gross figure used for MTD entry.

Match milestone payments to your accounting method

Cash basis is the standard method for eligible sole traders, but you can choose traditional accounting. It is not compulsory simply because your work is billed in stages. HMRC explains the choice.

Under cash basis, receipts normally enter the accounts when received and expenses when paid. Traditional accounting considers income earned and expenses incurred, including appropriate treatment of debtors, advance payments and work in progress.

A milestone payment across the tax-year end

Consider this illustrative project for a sole-trader architect using cash basis and not registered for VAT:

The £4,000 payment falls in 2027–28. The ordinary advance fee falls in 2026–27. Money held strictly on trust or as a refundable security deposit needs separate analysis. The example applies HMRC’s cash-basis receipt rules.

Keep the invoice outstanding in your project records until paid. A cash-basis tax treatment is not a reason to lose sight of debtors or stop chasing an overdue fee.

Distinguish client disbursements from your own costs

Planning application and building control payments need particular care. A fee does not become a disbursement merely because you show it separately on an invoice or recharge it without a markup.

Ask who is receiving the service, who is legally responsible for the payment, and whether you are acting as the client’s agent. Keep the authority’s receipt, the client’s authorisation and the amount recovered together.

For VAT, all HMRC’s conditions must be satisfied before treating a payment as a disbursement. These include client responsibility, permission, an exact recharge and separate identification. HMRC’s disbursement guidance also explains why your own travel and similar costs are normally recharges.

A practical distinction

If a client owes an authority £500 and authorises you to pay it strictly on their behalf, the funds may belong in a client-money clearing record. If you incur £500 for a service supplied to your practice as part of delivering your commission, recovering that cost may form part of your trading income.

That is a practical application of the agency distinction, not a blanket ruling on planning fees. VAT disbursement treatment and income-tax turnover should each follow the actual arrangement. Ask your accountant to settle the treatment before routinely excluding these amounts from MTD records.

Capture professional fees and practice protection

For a sole trader, section 34 of the Income Tax (Trading and Other Income) Act 2005 requires a business purpose for deductible expenditure. HMRC’s explanation is the starting point for evaluating practice costs.

Relevant costs may include:

• Architects Registration Board annual retention fees for your practising registration.
• RIBA or RICS subscriptions connected with your work.
• Professional indemnity insurance and other business cover.
• Relevant technical journals and continuing professional development.
• Business legal advice and professional assistance with practice accounts.

The Architects Registration Board is the UK regulator of architects; ARB registration and professional-body membership are distinct matters. For tax, retain each invoice and its business purpose rather than merging all professional payments into an unexplained annual amount.

HMRC permits relevant professional organisation subscriptions and professional indemnity premiums. Do not assume every payment to a professional organisation or every personal insurance policy qualifies.

Separate software, equipment and site protection

Regular AutoCAD, Revit or Vectorworks subscriptions are normally running costs where used for the practice. An expensive workstation, 3D laser measuring device or plotting machine needs the equipment treatment appropriate to your accounting method.

Cash-basis purchases of qualifying business equipment generally receive an expense deduction when paid. Traditional accounting generally uses capital allowances instead. Calibration, maintenance and plotting consumables should remain identifiable as running costs. HMRC’s office and equipment guidance explains the distinction.

Hard hats, protective site boots and other necessary protective clothing can qualify. Ordinary smart clothing for client meetings generally does not, even if you only wear it professionally. See HMRC’s clothing rules.

Record why each site journey was made. Travel between business appointments and ordinary commuting are different, and repeatedly attending the same location can change the analysis. Home working does not automatically turn every departure from home into deductible business travel.

Organise updates around project reviews

The Income Tax (Digital Obligations) Regulations 2026 and HMRC’s reporting direction establish the quarterly reporting framework.

For standard 2026–27 periods, updates are due on 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. Each covers the tax year to date. The November submission therefore includes 6 April to 5 October, rather than only the latest three months. HMRC provides the period dates.

At each review, reconcile milestone receipts, inspect client-money movements, check annual insurance payments and resolve uncategorised purchases. Keep a separate list of work billed but unpaid. That list supports cash collection even when an unpaid invoice has not yet entered cash-basis taxable income.

You still complete an annual return: 31 January 2028 is the deadline for 2026–27. Quarterly updates do not create quarterly income-tax bills. HMRC’s first-year quarterly penalty relief does not remove annual filing or payment responsibilities.

Give the practice a clear financial routine

Well-kept records should make it easier to manage your practice as well as meet HMRC requirements. The useful distinctions are between billed and paid work, your own fees and client money, and running costs and equipment.

Avona.app costs £15/month, with Avona AI helping categorise transactions for your review. For a service managed by chartered accountants, Avona Concierge starts from £60/month.

Explore the Avona options and choose the level of support that suits your project workload.