Making Tax Digital for Landlords

In this article we take a look at Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) and the extension to Businesses and Landlords

The government is extending the requirement to operate Making Tax Digital (MTD) to the 4.2m taxpayers with business and/or property income over £10,000, including landlords, sole traders and partnerships, for their Income Tax obligations.

Who is affected?

These changes will apply to businesses, self-employed individuals and landlords who are chargeable to Income Tax.

Landlords are described by HMRC as a property business and yet their income, rents received, is treated as an exempt transaction for VAT purposes, for example, landlords do not need to register for VAT and submit quarterly returns.

The only exception is if a let commercial property has been opted-in to VAT.

This means that the majority of landlords taxed under self-assessment have escaped the initial impact of HMRC’s drive to digitise reporting as determined by their Making Tax Digital (MTD) program – presently, all VAT registered businesses are required to submit their returns using software that can link with HMRC’s MTD servers.

The changes from April 2024

From April 2024, MTD is being extended to cover income tax for self-assessment (MTD for ITSA). MTD for ITSA will apply initially to self-employed individuals and landlords who have business and/or property income of more than £10,000. If you have both property and business income, MTD applies if the total is over £10,000. Individuals to whom this applies will need to comply with MTD for ITSA from the start of the 2024/25 tax year (i.e., from 6 April 2024).

All other individuals within Income Tax Self-Assessment will be required to comply with MTD for ITSA from the start of the 2025/26 tax year (i.e., from 6 April 2025).

Quarterly updates

Quarterly updates are required for each business and each property business. This may mean that you need to make multiple submissions. Quarter end dates are set at 5 July, 5 October, 5 January, and 5 April. However, you will be able to elect to use calendar quarters instead and submit information to 30 June, 30 September, 31 December and 31 March.

Digitising your Business

If affected, landlords will need use software to record their property business transactions that is compliant with HMRC MTD for ITSA directives.

Aside from meeting HMRC’s requirements, to digitise your property business for MTD purposes, you will find that the reports you can extract from a digital accounts system will more than repay your investment in the conversion process.

Whilst 2024 may seem to be in the far distant future, we recommend that landlords who will be drawn into the MTD for ITSA net from April 2024 consider their options now. We can help you choose cost-effective accounting software and train you to use the software before the 2024 deadline.

Note: If you have incorporated your property business, MTD for corporation tax purposes is planned to commence no earlier than April 2026.

Summary & next steps

From 2024, landlords will be required to switch to using MTD for Income Tax for their income tax accounting and reporting if the income from property rentals exceeds £10,000 per year.

MTD means you are no longer able to keep and submit manual VAT records and returns. Instead, HMRC will only accept VAT returns sent using software that supports Making Tax Digital for VAT, such as Xero.

The use of this technology is mandatory so it’s a good idea to plan ahead and upgrade your software, or migrate your accounts as soon as possible.

Once you’re up and running, you should find it far easier to submit returns using online MTD software. If you need some help and assistance, get in touch.