Making tax digital for landlords | Ultimate Guide to MTD

MTD for income tax begins on 6th April 2024; from this date, most landlords will:

1. switch from having to make annual tax returns to filing quarterly updates to HMRC
2. have to keep their accounting relating records in a digital format

These changes will apply to landlords with combined rental and self-employment income of over £10,000.

Making tax digital is the government initiative to reform the UK tax system. Maintaining digital records will make it easier for UK taxpayers to get their tax right.

It has been around since 2019 but, to date, has only applied to VAT. The next phase, from April 2024, is income tax self-assessment, and corporation tax will follow from April 2026 at the earliest.

We provide a vast range of landlord accounting services to those in the Shropshire area, contact us today.

How will making tax digital affect landlords?

Landlords with total rental income over £10,000 that is taxed under the self-assessment system will have to move to MTD compatible software from 6th April 2024.

Therefore, landlords that are currently keeping paper accounting records will have to move to MTD compatible software and be able to use it to maintain their income and expenses data.

Income tax compatible software must be able to:

1. Maintain business records for income tax accounting.
2. File quarterly updates that summarise business income (including property rental income) and allowable expenses. Landlords will have up to one month at the end of each quarter to do this.
3. Send an end-of-period statement as a final declaration to HMRC after the tax year, confirming that quarterly updates are accurate and accounting adjustments have been made.
4. Send updates to HMRC and link to digital accounts.

The compatible software will also need to be regularly updated, as quarterly updates will need to be filed to HMRC within a month of the end of the quarter.

This may all seem like doom and gloom, but MTD for income tax will be an excellent change for landlords.

Not only will they have regular up to date financial insights into the income from property, but they will also get a predicted tax bill once a quarter. Knowing how much money property rentals are making and how much tax is due regularly will enable a landlord to manage their portfolio more effectively and put money aside for their tax.

When does it start?

Making tax digital for income tax is a legal requirement from 6th April 2024.

Landlords can sign up early for MTD for income tax under HMRC’s pilot scheme if they are:

1. UK resident
2. Have already submitted a self-assessment tax return with property or sole trader income
3. Are keeping digital records
4. Up to date with their tax payment

More information about HMRC’s pilot scheme can be found here.

How to prepare for MTD as a landlord

The main task is to get your accounting-related records set up on the right software before the start of your first accounting period under making tax digital.

This software needs to be MTD for income tax compatible and capable of submitting the required updates to HMRC.

With quarterly submissions being due within one month of the quarter’s end, it is important to get into the habit of keeping this regularly up to date.

If you have not done so already, we recommend moving all your income and expenditure from your rental properties into a separate bank account.

What accounting software can I use?

The right system for your property investments depends on many factors:

1. If you have more than one property
2. If you have jointly owned property
3. The type of properties in the portfolio, i.e. furnished holiday lettings, HMCs, commercial etc.
4. If you have sole trader income

At Spotlight Accounting, we are working with Hammock and Xero across our client base and recommend these based on individual client requirements.

Filing income tax self-assessment digitally

To file your quarterly updates and final declaration, from the start of the 2024/25 tax year, your accounting records need to be maintained regularly.

Transactions must be recorded individually on the date you receive income or pay allowable expenses.

To make submissions to HMRC, you will need a government gateway login and MTD for income tax added as a service.

The compatible account system will summarise all the transactions, which must be submitted online within one month of the quarter’s end.

See table below for the deadlines:

Each quarter your account will be updated and an estimated tax bill will be calculated.

A final declaration will need to be made at the end of the tax year. This will include all necessary accounting adjustments and confirm that all updates that have been provided are accurate.

Under making tax digital for self-assessment, these quarterly updates will replace your self-assessment return and will deal with your tax affairs.

Therefore there will be no additional requirement to file a self-assessment tax return.

HMRC will be applying penalties for submissions that are late.

FAQ’s

I own a property with my husband, and our total income is over £10,000, does making tax digital apply to me?

The £10,000 threshold applies to an individual’s total rental income from multiple properties. Where a property is held jointly with a family member or business partner, your share of the rental income counts towards the £10,000 limit.

I have income as a sole trader of over £10,000 and receive rent of less than £10,000, does making tax digital apply for both?

Qualifying income for making tax digital for income tax is sole trader business income and property income.

If the combined income over the two is over £10,000, then rental and sole trader business income must be reported through MTD for income tax.

So if you have rental income of £8,000 and income from sole trader businesses of £4,000, both must be reported under making tax digital.

My property rentals are held in a limited company. Does this apply to me?

Not yet; these changes are for income tax. As a limited company, you will fall under making tax digital for corporation tax, which will be rolled out in April 2026 at the earliest.

I have other personal income from investments of over £10,000. Will I still need to submit a tax return?

Based on HMRC’s guidance, last updated on 7th September 2022, you will need to submit a tax return as this income will not fall under MTD for income tax.

I receive rent from non-UK properties. Does MTD for income tax apply to me?

If you are a UK resident, MTD for income tax applies to all property income both in the UK and overseas for landlords with rent received of over £10,000.

Our property portfolio is in a partnership. Does making tax digital for landlords apply to us?

MTD for income tax will apply to partnerships under self-assessment from 6th April 2025. The last tax returns filed for a partnership will be for the 2024/25 tax year.

Conclusion

Like it or not, MTD for income tax is coming, and landlords must be prepared by implementing the right software not only for HMRC requirements but, more importantly, so that they can manage their portfolios more effectively.

How can Spotlight Accounting help you?

Feel like it is all red tape that you need to navigate through? Don’t worry; our expert team is here to help.

We can work with you to choose the most suitable software for your property business, set it up, and provide training on how to use it.

Not only that, we will point you in the direction of how to get valuable insights into your property business so that you can keep an eye on its performance.

We can also look at how your property portfolio is held, if this is in the most tax-efficient form and how or if to move it.

Once MTD for income tax comes into force on 6th April 2024, we can deal with the HMRC filings on your behalf – a bit like we do with tax returns now. So you can relax, safe in the knowledge that all the filings to HMRC are correct and have been made on time.

Get in touch with our expert team, and we can help you prepare for these changes.

We are running a series of events to support landlords in getting ready for MTD for income tax, so sign up to our newsletter to hear about these first!