Making Tax Digital for landlords: a guide

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Date: 13 September 2021

An female landlord holds the keys to one of her rental properties

How much do you know about Making Tax Digital (MTD)? Well, if you're a UK landlord you need to know some basic facts, because MTD could affect you in the near future. 

Making Tax Digital is an ambitious government initiative that will completely change how people and businesses keep their financial records and report data to HMRC.

MTD is being introduced to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes. These are estimated to have cost the government more than £9.9bn in lost tax revenue in 2017-2018 alone.

Making Tax Digital will totally transform how financial records are kept and reported to HMRC. MTD for Income Tax will bring in a new way of reporting your earnings as a landlord to HMRC. This guide provides a basic overview of MTD and its implications for landlords.                                                             

Here's what we'll cover

  • How MTD will change record keeping and reporting
  • When MTD for Income Tax will be introduced
  • How to voluntarily join MTD for Income Tax

How will Making Tax Digital for Income tax change things?

When introduced, you (or your accountant if they look after your books and tax returns) will need to use MTD-compatible software to maintain digital records of your income and expenses.

Your MTD-compliant software will summarise your figures, which you must send online via your HMRC digital account (you will get up to a month after each quarter ends). You'll also be able to see how much tax you owe, based on the information you've supplied, so you can budget for paying your tax bill.

At the end of the tax year, you'll need to finalise your business income and submit a final declaration, confirming that the updates you have provided are accurate, with any accounting adjustments made. Once that is done, you'll receive your tax bill. You must submit your final declaration and pay the tax you owe by 31 January the following tax year.

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When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules for any accounting period starting on or after 6 April 2023.

You'll still need to send HMRC a Self Assessment tax return for the tax year before you signed up for MTD for Income Tax. But after that, you can wave goodbye to completing an annual Self Assessment tax return (and all the hassle and panic that can goes with it). Having to record your expenses every quarter might also prevent you from forgetting any and failing to claiming for them.

If you're already using software to maintain your financial records, HMRC recommends asking your provider whether they plan to make their software MTD-compatible. The GOV.UK website already lists software that is compatible with Making Tax Digital for Income Tax. If you currently maintain paper records, you'll need to find an MTD-compatible digital solution.

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. You may be able to sign up voluntarily for MTD for Income Tax if:

  • you're a UK resident
  • you're registered for Self Assessment as a landlord and
  • your returns and payments are up to date

You can sign up now for your current or next accounting period. It could be a good way to get used to the requirements of MTD and to make sure you have the right software and systems in place. If an accountant maintains your financial records and/or looks after your tax returns, they can sign up for MTD for Income Tax for you. If you need to report income from other sources (eg wages from working for someone else), you cannot sign up voluntarily.

Visit GOV.UK to sign up your business for Making Tax Digital for Income Tax. You'll be asked for your:

  • name
  • email address
  • National Insurance number
  • accounting period
  • accounting type (eg cash or standard accounting)
  • Government Gateway user ID and the password you use when you file your Self Assessment return

If you don't have a user ID, you can create one when signing up.

MTD: What if I have more than one property for rent or let?

You will report your earnings and expenses for all of your properties together under MTD. You don't need a digital account for each property. However, you should maintain detailed records for each individual property, for your own benefit, so you can better understand and compare income and costs.

Making Tax Digital: What if I co-own property?

If a property is owned by a business partnership and you're a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.

Quarterly summary information concerning an individual's share of the profit (based on ownership) can be pushed to each partner's digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner's share of profits to their digital tax accounts. Individual tax liability will then be calculated.

In cases of jointly held property, for example, where a husband and wife own a property for rent or let, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital.

Where can I find more information about MTD for Income Tax?

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