Some landlords have less than six months to prepare for complying with Making Tax Digital.
HMRC is forging ahead with its programme to digitise the tax process, with a new group of landlords set to be drawn into the system next year.
If you’re a self-assessing landlord earning £30,000 to £50,000 a year, you may have already received a friendly ‘reminder’ from HMRC about complying with Making Tax Digital (MTD).
If you’re still confused, here’s a quick explainer.
What is MTD?
It’s a major shake-up in how self-assessing landlords report to HMRC.
The digital system is already mandatory for VAT-registered businesses, and sole traders and landlords with gross incomes greater than £50,000.
From April, landlords and sole traders with a gross income of over £30,000 will have to comply, too.
(Landlords and sole traders with qualifying incomes above £20,000 will be drawn into the MTD net in 2028.)
What income do you need to declare?
Qualifying income includes rent and what you’ve earned from self-employment (sole trader turnover).
Pension and PAYE income do not count towards your qualifying income for MTD.
What does MTD involve?
Essentially, it means keeping digital records of your income and expenditure (which most landlords probably do already) and sharing this information with the taxman four times a year.
You must provide HMRC with quarterly updates using MTD compatible software. These should include your business income and expenses.
You also must file a year-end confirmation statement.
Why?
The government says MTD saves everyone time and reduces the risks of unintentional error.
Many people report that it helps them track expenses and avoid the last-minute stress at the end of the tax year.
How big a change is it?
It depends on how you currently manage your finances. If you’re a bit haphazard and rely on a combination of paper files and spreadsheets, you’ll have to reorganise your system.
And if you tend to defer all your tax admin until the very last minute, you’ll need to adjust to meeting quarterly filing deadlines.
On the upside, you’ll have a clearer picture of how you’re travelling throughout the year.
For landlords who already have sound digital reporting systems, it won’t be too much of a change. It may just be a matter of noting the quarterly deadlines and ensuring your reporting software is HMRC-approved.
Can a letting agent help?
If a letting agent manages your rental, they should be able to provide the rent and expenses data you need. However, they won’t know the full extent of your financial situation and your self-employed income.
Your letting agent may also have some suggestions regarding reporting software, as they’ll already have experience supporting MTD-compliant landlords.
What if I’m really old school?
If, for health reasons, you can’t use digital tools (for example, due to age or disability), you can apply to HMRC for a digital exemption.
Penalties
A points-based system for those who frequently miss deadlines or make late payments will start in April 2027.
Want help managing your rental? Call us. We’re here to help you meet all your regulatory requirements.
