Making Tax Digital (MTD) is an ambitious scheme by the HMRC to move all tax administration to a digital system. The HMRC believes this transition will reduce bookkeeping errors making compliance easier for businesses and self-employed.
The new Making Tax Digital scheme necessarily means a dramatic change to how you will need to track and report your income and expenses for your buy-to-let properties.
In this article, we explore seven major parts of the MTD transition that landlords need to be aware of.
1. Key MTD Dates
MTD came into effect for VAT registered businesses earning over £85k in April of 2019.
From the 6th of April 2023, it will apply to all self-employed, partnerships, and landlords whose combined gross income for the year exceeds £10,000.
2. Keeping Digital Records
To ensure you can submit all your updates in a timely fashion, you will need to have systems in place to keep up-to-date digital records. The easiest solution is to adopt a cloud accounting software like Landlord Studio that allows you to track your income and expenses on the go, connect your bank account for easy reconciliation, and digitise receipts at the point of sale.
3. Multiple Tax “Updates” Per Year
The number of returns (termed ‘updates’) to be submitted under the new MTD system will increase. Regulations state that individual landlords must submit separate quarterly ‘updates’ for each property business category (i.e. separate ‘updates’ for lettings, furnished holiday lets, and overseas lets) plus an end-of-year final statement. The minimum number of submissions will be five per tax year but could be as many as 20 if you have income from multiple business categories.
4. New Dates To Submit Your Taxes.
Taxpayers will need to submit updates every quarter (rather than just a single end-of-year statement) between 10 days before the quarter-end to precisely one month from the end of each quarter. You will also be required to confirm your previous submissions with a finalisation statement to be submitted by January 31st after the tax year-end.
5. Digital Documents And Receipts
While you won’t need to submit receipts and documents unless requested by the HMRC, this backup information must still be kept. You will want to make sure you are keeping them for your records and posterity.
It’s a good idea to find software that, as well as enabling digital record-keeping, will allow you to easily digitise receipts. For example, an income and expense tracking tool like Landlord Studio allows you to use your phone camera to snap a picture of a receipt at the point of sale and attach it to your recorded expenses for future reference.
6. Use approved software for quarterly submission
To be compliant you will need to have an approved software in your arsenal of tools so that you can digitally submit your quarterly returns as required by the new MTD rules.
7. Late Payments and Penalties
In conjunction with the launch of MTD, the HMRC will be updating its penalty scheme for late payments and submissions. There will be some leeway, especially during the first year as people become used to the system.
The new points system will designate one point for every missed submission deadline with a penalty of £200 once the threshold for the points is reached.
Once the points have reached the threshold, which for landlords will be 4 over 12 months, the taxpayer must bring everything up to date and then remain compliant for the following 12 months to reset the points back to zero.
If a taxpayer misses a payment, after 15 days grace period a 2% penalty will be applied. Should the taxpayer fail to pay after 31 days the penalty will be increased to 4%.
April 2023 may seem a long way in the future, however, it is never too early to start preparing. Landlords need to be aware of the changes taking place and put together processes to ensure that the transition goes as smoothly as possible.
Landlord Studio is a cloud-based property management and accounting system that allows you to manage your tenancies, track income and expenses, digitise receipts and more through either the mobile app or desktop portal.