Started letting or trading partway through the year? How MTD looks at a first, shorter year

Imogen is fictional, but her first year as a landlord will sound familiar to many people who started letting partway through a tax year. She began letting a flat in the autumn of 2025, so the tax return for her first year shows only six months of rent. When she read about the Making Tax Digital (MTD) for Income Tax thresholds, her total looked comfortably small, and she wondered whether she could set the whole subject aside. This guide explains why a shorter first year can make income look smaller than it really is for the MTD test, what GOV.UK says about annualising it, which year’s return is tested for each start date, and what to do if a new income source starts after you have already signed up.

Why a part-year total can understate the test

The MTD test compares a year’s qualifying income with the threshold. GOV.UK describes it this way: HMRC assesses your qualifying income for a tax year by checking the Self Assessment tax return you submitted in the previous tax year, and you should also check your qualifying income yourself. The difficulty for someone in Imogen’s position is that her first return covers only the months after she started. If she compared that figure with the threshold as it stands, she would be comparing a few months of rent with a test that assumes twelve.

That is why GOV.UK has a section headed “If your accounting period is longer or shorter than 12 months”. Annualising means working out what your qualifying income would be over a full tax year. Without that step, two landlords with the same monthly rent could land on different sides of the threshold simply because one of them started letting in the spring and the other in the autumn.

How annualising works, in GOV.UK’s words

GOV.UK treats sole traders and landlords differently here, so it helps to read the two rules side by side.

• Self-employment. If you are a sole trader, HMRC will annualise your qualifying income if it has the information. For example, if you have become a sole trader but have only been trading for 6 months in your first tax year, HMRC will double your income to find out your qualifying income.
• Property. If you receive income from property, you need to annualise your income yourself to work out your qualifying income.

The second rule is the one that matters most for Imogen, because it puts the work on her rather than on HMRC. GOV.UK does not set out a particular method for annualising property income beyond saying that you need to do it yourself. If your first year is not straightforward, for example because the rent changed partway through or the property stood empty for a while, it is worth checking your figure with HMRC or an accountant rather than relying on a rough estimate.

An illustrative example with Imogen’s figures

The figures in this section are an illustration only. They are not GOV.UK figures and do not describe a real person. They scale the rent up to a full year in the same simple way as GOV.UK’s sole-trader example, which is a reasonable way to picture the idea but is not a method GOV.UK sets out for property income.

Suppose Imogen’s flat brings in £2,600 a month before expenses. Over the six months on her first return, that comes to £15,600. Scaled up to twelve months, the same rent would come to £31,200.

Her first return is for the 2025 to 2026 tax year, due by 31 January 2027, and GOV.UK pairs that year with the £30,000 threshold for MTD from 6 April 2027. The part-year figure is at or under that threshold, while the annualised figure is over it. On these illustrative figures, that is the difference between assuming MTD can wait and seeing that it applies from that date.

Which year’s return is tested for each start date

Knowing which return counts tells you when your first year will matter. GOV.UK pairs each MTD start date with the tax year whose return HMRC checks, and the pattern is the same for every step: the return tested is for the tax year that ended a year before MTD starts.

So if you started letting or trading during one of those tax years, your first return is for that year, and the annualised figure from it is compared with the threshold in the same row. GOV.UK’s timeline on this page runs to the step from 6 April 2028 and does not list later tax years, so this guide does not either. If HMRC reviews your return and finds your income is above the relevant threshold, it will write to confirm that you need to use Making Tax Digital for Income Tax by the start of the next tax year. Even if you do not receive a letter, you must still check your qualifying income to find out whether you need to use the service and sign up.

You still need to submit a Self Assessment tax return for the tax year before you start using Making Tax Digital for Income Tax. When you do sign up, GOV.UK says that you must be registered for Self Assessment and have submitted a tax return in the last 2 years. To sign up, you need your business start date, or the date you started receiving property income, if this is within the last 2 tax years. That is worth knowing if you started recently, because it is one of the details the sign-up service will ask you to confirm.

If you have rent and trading income as well

If you have both property and self-employment income, the threshold looks at the two together rather than one at a time, and that is where many first-year landlords who also trade need to look next. The guide to combining rental and self-employment income for the MTD threshold explains how that combined total works, so it is not repeated here.

When a new income source starts after you have signed up

The rules change once you are already using MTD, and GOV.UK treats a new property differently from a new business. If you need to add a source of self-employment income, property income or both, you must tell HMRC using your HMRC online services account, or your agent uses their agent services account.

For landlords who already let in the UK, GOV.UK begins with what does not count as new. If you are already a UK landlord and start renting out another property in the UK, this is not treated as a new income source, because the property forms part of your existing property business. All your UK properties are treated as one UK property business, and all your non-UK properties as one foreign property business. Where the new property forms part of an existing property business, you need to create digital records for its income and expenses from when you start to receive rent from it.

A genuinely new income source, such as a first sole trade alongside your lettings, follows a different path. If you have a new self-employment or property income source, you only need to start creating digital records and sending quarterly updates for it after you have included it in a tax return. GOV.UK says you will need to:

1. check that your compatible software can report your new income source
2. add the new income source to your HMRC online services account (or your agent adds it in their agent services account) before you submit the tax return that includes it
3. give details about the new income source, such as the start date, which for property income is the date you started to receive rental income
4. start creating digital records and sending quarterly updates for the new income source after you have submitted a tax return that includes it for the first time

GOV.UK’s own example makes the timing clearer. A new income source that starts on 1 July 2026 goes on the 2026 to 2027 tax return, which must be submitted by 31 January 2028. After that return is in, digital records and quarterly updates for the new source start from 6 April 2028.

If you prefer, you can choose to report the new income in Making Tax Digital for Income Tax from when it starts, by selecting the option in your HMRC online services account (or your agent's agent services account) to switch to sending quarterly updates from the date the income starts. After you have added the income source, check that it appears in your software. If it is not there, you may need to refresh it in your software. The guide to your first quarterly update explains what an update contains once the new source is included.

Checking your own figures

Once you have a full-year figure for each income source, the Am I in MTD? calculator can add them up and show which threshold applies. Enter the annualised figures rather than the part-year totals from your first return. If you would like the wider rules first, the main MTD guide covers who is in, what quarterly updates involve and the dates that matter next, and the guide to MTD penalties explains how penalty points work. GOV.UK’s page on working out your qualifying income has the full detail on annualising.

Questions people ask after starting partway through a year