Making Tax Digital for Landlords: Everything you need to know
Landlords with an annual rental income of more than £10,000 will soon be faced with a big change in how they report for income tax. Here’s a closer look at Making Tax Digital (MTD) and what it means for your property business.
What is MTD and does it affect me?
The government describes its Making Tax Digital initiative as a way to give the UK “one of the most digitally advanced tax administrations in the world”. Back in the real world, it means that many people will need to submit income details at more frequent intervals than they do at present, and will need to use HMRC-compatible software to do it.
From April 2022, all VAT-registered businesses have been required to keep digital records and submit their VAT returns using MTD-compatible software.
Making Tax Digital for Income Tax comes into force on 6 April 2024. Sole traders and landlords with annual self-employed income or property income above £10,000 will need to follow the new rules. If you are a landlord as well as a separate business owner, you will need to combine rental and business income to consider whether you are over the £10k threshold.
The new rules require you (or your accountant) to maintain business records, prepare and send updates, submit declarations and communicate with HMRC using MTD for Income Tax compatible software. Virtually all of the popular business accounting solutions (e.g. Sage, 123 Sheets, Xero and Quickbooks) are either MTD-compatible already, or are in the process of becoming compatible. HMRC has a list of approved software products here.
HMRC does not transfer you automatically onto MTD from the self-assessment system. You have to register for an MTD account if your income is above the £10k threshold.
If you are not already registered for MTD under the VAT requirements, you or your accountant must register by 5 April 2024 (the HMRC link for this is here). You’ll need compatible software in place before you register, in order to start sending updates.
NB: you still need to file your self assessment tax return for the year prior to MTD coming into effect. Once MTD comes into effect, you will no longer need to file a self-assessment return each year unless you receive income not covered under either PAYE or MTD (share income, for instance).
Filing and payment requirements under MTD for Income Tax
- You are required to send quarterly updates detailing your income and expenditure via your accounting software (the software will automatically summarise your figures). Each year, the deadlines for these quarterly updates will be 5 August, 5 November, 5 February and 5 May.
- You send an End of Period Statement (EOPS) at the end of the financial year by 31 January after the tax year. The EOPS is meant to finalise your income, allowing you to make any necessary adjustments to your earlier quarterly updates and claim any reliefs.
- Also by 31 January after the tax year, you send a Final Declaration.
- You will get your tax bill shortly after submitting your Final Declaration. Any tax owed must be paid by 31 January after the relevant tax year.
Landlords with multiple properties
The threshold for MTD is £10k per-taxpayer, not per-property. If you have multiple properties and/or multiple sources of self-employment, you account for them all under the same MTD account.
Jointly owned property
If you jointly own one or more property (with a spouse, for instance), each person in receipt of income from the jointly held properties must account for the income they have received. Again, the 10k threshold per taxpayer applies.
MTD for Income Tax for business partnerships comes into effect a year later, in April 2025. Under this scheme, partnerships will be required to have a nominated partner responsible for MTD compliance. Quarterly summaries, EOPS and Final Declarations need to be pushed to each individual partner’s MTD account. The individual tax liability of each partner will then be calculated by HMRC.
If your property is held under a limited company, MTD will not apply (for now, at least). At present, HMRC is aiming to introduce MTD for Corporation Tax in 2026. We don’t know how exactly it will work yet; HMRC currently has pilot schemes in place to test out different operating models.
Overseas landlords and overseas properties
If you are an owner of UK properties who does not reside in the UK, the MTD for Income Tax rules apply (again, subject to the £10k threshold).
If you live in the UK but earn rental income from properties located abroad, the MTD rules also apply. However, you may be eligible for tax relief, depending on how the rental income is treated for tax purposes in the country where the property is located. For expat landlords and owners of overseas property, we have a dedicated advisory service (including assistance with the HMRC non-resident landlord scheme) to help you navigate all of this.
From advice on choosing and implementing landlord-friendly accounts software through to comprehensive assistance with bookkeeping and tax submissions, London accountants, MJH Accountancy are here to help. Speak to us today to ensure the switch to MTD is as painless as possible.