Making Tax Digital for Landlords

The Making Tax Digital deadline for Income Tax Self-Assessment for businesses and landlords has been extended by the Government to April 2026

From April 2024, 4.2 million Self-Assessment taxpayers (including landlords) with business and/or property income over £10,000, will need to comply with Making Tax Digital (MTD) for their income tax. However, general partnerships will not be required to join MTD Income Tax Self-Assessment (ITSA) until April 2026.

MTD is the first phase towards a digital tax service. It will support businesses through the digitalisation process and provide a digital service that has now come to be expected. MTD is a key part of the Government’s 10-year strategy, ‘Building a trusted, modern tax administration system’, which was published on 21st July 2020

MTD was originally scheduled to take place in April 2023 however, in recognition of the challenges faced by many UK businesses following the devastating effects of the Covid pandemic, the Government is introducing MTD ITSA a year later, in April 2024 instead of April 2023. This will therefore, allow those affected more preparation time.

MTD ITSA builds on the introduction in April 2019 of MTD for those VAT-registered businesses with taxable turnover above the VAT threshold and follows the introduction of MTD for VAT-registered businesses with turnover below the VAT threshold from April 2022.

Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HM Revenue and Customs (HMRC). Under the changes, those mandated to use MTD ITSA are required to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, together with an end of year report, using MTD compatible software (or applications).

For VAT periods starting on or after 1st April 2019, VAT-registered businesses with a turnover above the VAT registration threshold have needed to keep their records digitally and provide their VAT return information to HMRC through MTD-compatible software.

To Summarise:-

Businesses, self-employed people and landlords will be required to:-

To operate MTD from 6 April 2024 in relation to their trading and property income chargeable to Income Tax and Class 4 NICs if their gross income from these sources for a tax year exceeds £10,000

To keep their records digitally (for ITSA purposes only), provide digital quarterly updates and their ITSA return information to HMRC through MTD compatible software

The new MTD ITSA regulations require a relevant person to keep and preserve their tax records electronically and to submit reports to HMRC using approved software. A report of the business’s trading or property income, allowable expenditure and claims for allowances or reliefs against such income must be submitted in relation to each tax year (property businesses) or basis period (trading businesses).

Interim reports need to be submitted quarterly on fixed dates which are set out in the regulations. A consultation draft of these regulations was published back in September 2017 and a revised draft was then published in December 2020.

However, the Government has also been clear that if a business cannot go digital, it will not be required to do so.

MTD is intended to help businesses get their tax right, with mandatory use of digital record keeping and using MTD-compatible software to provide HMRC updates and returns digitally.

Businesses that are already exempt from engaging with HMRC through other mandatory digital channels will be exempted from the MTD requirements. If a business is not already exempt from engaging with HMRC digitally, they may request that HMRC consider an exemption, so they don’t have to meet the MTD requirements. The exemptions under MTD are the same as the VAT online filing exemption.

The Government recognises that the population affected is diverse and this includes approximately 1 million landlords.

HMRC estimates the transitional cost to business of being around £1,383m and a net increase in the ongoing costs of tax compliance of approximately £152m for those businesses mandated to use MTD ITSA. This equates to an average transitional cost of £330 and an annual cost of £35 per business.

Businesses already operating MTD VAT or using digital tools for business administration may only incur relatively little cost, whereas other, less digitally capable businesses, may be more affected by higher one-off transitional costs as they move over to the MTD processes.

Through MTD, businesses and landlords will be required by law to keep digital records. This will involve a transitional cost for businesses not already doing this. They will need to purchase, or acquire a free version of software. The Government has committed to making free software products available for the smallest businesses with straightforward affairs.

More information can be found by going to www.gov.uk and searching Making Tax Digital (MTD) – Customer Costs and Benefits for the Next Phases of MTD where the impacts, costs and benefits to businesses and individuals of the next phases of MTD expansion (ITSA and VAT) together, are available in further detail.

Here at David Andrew we can collect your rent, submit your 1.4 returns or manage your property on favourable terms. For further information and to discuss your requirements, please contact our Property Management Office on Tel: 020 7354 9222 at 235 Blackstock Road, London N5 2LL, or email theo@davidandrew.co.uk. We look forward to hearing from you!