Making tax digital (MTD) for income tax is part of the government's long-term strategy to digitalise tax and will have implications for how landlords pay tax on their income. For those used to self-assessment, it will represent a change, but providing digital records will give businesses greater insight into their finances and help avoid mistakes and lost tax revenue. With this new way of reporting income for tax purposes already coming in, it is essential for landlords to fully understand the process and what it means for them.
The government already requires VAT-registered businesses over the VAT threshold to use software in their accounting. That came into play in April 2019, and all VAT businesses have needed to follow the rules since April 2022.
From April 2024, many businesses and individuals using self-assessment for their tax returns will need to move to MTD, including landlords. The threshold is those whose income is over �10,000 per year. If, as a landlord, your rental income is over �10,000, you will need to use MTD. If, as well as a landlord, you are also a sole trader, you will need to combine your income from all your businesses, including rental income and use the MTD program if you are over the threshold.
If your rental income is below �10,000 a year and that is your sole income, or your additional income comes from employment where your tax and NI are paid through your employer's payroll, then you do not need to move to MTD and can continue using self-assessment for tax liabilities.
One of the fundamental changes is that for MTD, it is compulsory to use software for accounting. If you already use software for your financial records, you will need to ask your provider if they intend to become MTD-compatible. The Gov.UK website has a list of software that is already compatible, including APARI, Sage and Untied, with a further list of companies with compatible software in development. It is worth checking this page as the deadline for moving to MTD comes closer to see if you need to change your provider.
MTD-compatible software comes in a range of prices and includes a variety of features, with some companies offering tiered systems to make them more affordable for smaller businesses. Some software packages offer free trials that are ideal for trying before you commit to them, and others provide a basic package that is entirely free. It is well worth looking closely at several different providers to find the one that best meets your needs and budget.
If you have property income from two or more properties, you do not need to register each one separately for the MTD program, as all your income will be submitted in one. However, for your purposes, it is probably still a good idea to maintain individual records for each property you own to be able to make sensible decisions and plans.
If a business partnership owns a property or several properties, a nominated partner must fulfil the MTD obligations on behalf of the partnership. The individual's share of the profit based on ownership will be pushed by the nominated partner to their digital tax accounts, and their individual tax liability will be calculated.
If you own property jointly, perhaps with a spouse, each person who received income from that property must register for MTD and report their income separately.
Assuming you have not already registered for MTD as a VAT business, you or your accountant must register by the 5th of April 2024. If you are already registered for self-assessment, you will not be moved automatically.
Using your software, you will provide HMRC with quarterly updates. Although there is no legal requirement for them to be accurate, they will be used to estimate your tax and NI obligations. Making them as accurate as possible will give you reliable estimates to help you with your financial planning.
By the 31st of January, following the end of each tax year, you will use your software to provide an end-of-period statement (EPOS) with details of your property income and expenses. If you have any other businesses, you will also need an EPOS for each of them. At this time, you should also complete a final declaration of income, combining income as a sole trader and your rental income. The 31st of January is also the deadline for paying tax and national insurance.
As with all changes, MTD is likely to take some getting used to, but Gov.UK guidance and videos are available to help you make the change more smoothly.