HMO landlords using letting agents could face an unexpected administrative burden under Making Tax Digital (MTD), with one property technology expert warning that traditional agent statements aren’t designed to meet HMRC’s new reporting requirements.

Ben Goodall, founder of RentSorter, says landlords with HMOs are among those most likely to be caught by the first phase of MTD because the £50,000 threshold is based on gross rental income before expenses, meaning that just one or two larger HMOs can push them into the regime.

He believes the problem bites hardest on landlords who use an agent, and an HMO is more likely to be agent-managed than a single let: several tenancies running in one building, with bills and licensing on top. The agent collects the rent, pays the bills out of it and passes on what’s left, so the landlord sees one payment a month after deductions for management fees, repairs and other costs.

“The money arrives net and the detail stays in the agent’s PDF,” Goodall (pictured above) tells LandlordZONE.

He argues that while agent statements contain the information landlords need, they were never designed as tax records.

Challenges

One of the biggest challenges is the level of detail involved with HMOs. Goodall explains that one four-bedroom HMO statement he analysed contained 45 separate financial transactions for a single month, while another managing agent issued a separate statement for each room, meaning a six-bedroom property generated 72 PDF statements a year.

Those statements also present information differently from the way HMRC expects landlords to keep digital records. “Statements are a running cash account between the agent and landlord. They can include landlord contributions, money due alongside money received, and one ledger entry may combine several invoices.

Although accountants can process the information manually, Goodall believes the move to quarterly reporting fundamentally changes the workload. “Instead of doing it once a year, the same exercise effectively happens five times.” That is four quarterly updates and a final declaration, with each quarterly deadline falling about five weeks after the quarter closes.

Software

His software reads the agent’s PDF and splits the single net payment into gross rent and itemised costs. It then checks its own arithmetic against the totals the statement prints, and flags anything that doesn't add up. Goodall says it handles five statements at a time in under a minute.

Goodall believes the property sector may eventually need to adapt, suggesting letting agent software providers could develop tax-ready exports alongside traditional monthly statements.

Yogesh Dhanak, senior technical advisory manager at the Association of Chartered Certified Accountants, sats letting agents’ statements might not necessarily provide the correct information for MTD if they are not designed to produce the digital income and expense data required for submission under the quarterly reporting regime.

Digital

“The digital information will have to be built into proper bookkeeping systems, which may require the expertise of professional bookkeepers or accountants,” he suggests. “Remember, though, that the use of spreadsheets and bridging software is still acceptable."

Clear, practical and up-to-date HMRC guidance on what information landlords need from their agents will be important, particularly where portfolios are more complex, such as HMOs, says Kim Lidbury, president of ARLA Propertymark (pictured right). “Landlords should also speak to their agent and accountant early to establish what information they will need and how it can be provided,” she advises.

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