A: As your client started a new sole trade partway through a tax year, they don’t have to start MTD quarterly reporting immediately. Instead, the new business is first included in the tax return for the year in which it started. Quarterly MTD reporting only begins from the April following the deadline for that first tax return.
For example, if the sole trade starts on 1 December 2025, it will be included in the 2025/26 tax return, which is due by 31 January 2027. As a result, MTD quarterly updates for that new business would not start until April 2027, unless the client chooses to join earlier.
When HMRC assesses whether the business meets the MTD income threshold, any new source that only ran for part of the year is annualised. This means the income is adjusted to reflect what it would look like over a full 12month period. HMRC does this so that part year figures do not make a business appear smaller than it really is when compared to businesses that traded for the full year.
This annualisation means that even if the actual income shown on the tax return is below the MTD threshold, the adjusted figure may still exceed it.
For instance, if someone becomes self-employed on 1 December 2025 and earns £7,000 per month, their 2025/26 tax return will only show £28,000 of income. Although this is below the £30,000 threshold, HMRC will annualise it to a full year: £7,000 × 12 = £84,000. Because the annualised figure exceeds the threshold, the client would be required to comply with MTD from April 2027.
These publications from Markel Tax were correct at the time of going to press and should be considered as principles-based guidance only. To check current validity, call the Markel Tax helpline. ICAEW (as distributor) disclaims all liability for any errors or omissions.
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