Making Tax Digital for Landlords - Everything you Need to Know
In December 2022, the UK Government announced that the introduction of Making Tax Digital has been delayed and instead of launching in April 2024, the first phase for ITSA will begin in April 2026.
The first part of Making Tax Digital (MTD) came into effect in the UK in April this year. Here Gemma Doswell from NRLA parter TaxScouts runs through everything you need to know to ensure you are complaint.
Making Tax Digital is a plan by the Government and HMRC to fully ‘digitalise’ UK tax.
Many businesses, self-employed workers and landlords use HMRC’s online services or manually complete their tax affairs on paper. Making Tax Digital will soon require them to keep their tax records and make submissions to HMRC digitally through MTD-compatible software.
When will Making Tax Digital come into effect?
The next stage of the MTD roll-out will cover Income Tax Self-Assessment and will come into effect in April 2024 and will affect anyone registered to pay Income Tax and National Insurance through Self-Assessment.
Will this affect me as a landlord?
The biggest deciding factor will be whether you earn more than £10,000 a year in taxable income from either property or business and property. Property types include:
- Residential property
- Furnished Holiday Lettings (FHL)
- Commercial property
- Non-UK overseas property
If you meet these requirements, then from April 2024 you will need to use MTD-compatible software to keep records and make submissions to HMRC online.
However, if you earn under the £10,000 a year threshold, you can continue to use the current Self- Assessment system as normal.
Some landlords have already joined a pilot MTD scheme for Income Tax Self-Assessment, which is being used to test and develop the new process. This will help those taking part get used to MTD before the April 2024 deadline.
What if I am a landlord that’s registered as a limited company?
MTD isn’t applicable to landlords who are registered as a limited company. If you fall into this category you can continue sending limited company accounts and Corporation Tax (is this right – or is it Corporation Tax documentation/ information etc) to HMRC and Companies House.
Why is the Government introducing these changes:
The main aim in switching all UK tax services from paper to digital is to create a simplified more streamlined process. It believes MTD prevent landlords making common mistakes when it comes to tax and submitting documents online will save them time and money.
It will also save HMRC money, with the current process costing them approximately £10 billion a year.
What software will I need?
Once MTD is introduced, you, your accountant, or your tax service will need to use MTD compatible software to update and report digital records of your rental income and expenses to HMRC.
It’s important you check the software you currently use is MTD compatible. You can do this here on HMRC’s website. It will need to allow you to:
- maintain business records as required by the regulations
- finalise your taxable business income and submit your declaration at the end of the tax year
- communicate with HMRC digitally through their API (application programming interface) platform.
- prepare and send quarterly updates and statements to HMRC from your tax records
I’m a landlord and I need Making Tax Digital help
If you’re a landlord who makes over £10,000 a year in taxable income and are confused by the upcoming MTD changes, then don’t worry. Get in touch with us for some simple, one-off tax advice from one of our accredited accountants. You can learn more here.