Landlords Guide To Making Tax Digital (MTD)
Landlords Guide To Making Tax Digital (MTD): All You Need To Know
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) comes into effect on April 6th, 2024.
MTD is part of the government’s 10-year plan to modernise the tax system by bringing it into the digital age. The changes require landlords and all self-employed businesses earning £10k or more to use compatible software to keep records, submit paperwork, and stay compliant. Changes like this, however, raise a number of questions. We’ll answer those today.
Which landlords will be affected by MTD for Income Tax?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will affect all landlords with a combined annual income of £10,000 or more from their property and/or business ventures.
The new scheme will replace the current Self Assessment tax return, and landlords must use compatible software to keep their tax files up to date. Limited company accounts and corporation tax will continue to be sent to Companies House and HMRC as usual for landlords registered as Limited Companies.
Self Assessment will remain the preferred method of filing tax returns for landlords earning between £1,000 and £10,000 per year.
What landlords need to do to prepare for Making Tax Digital?
The most important decision to make is how you will keep your records.
Landlords transitioning to MTD have two options: use entirely MTD-compatible software or a combination of bridging software (to file updates and returns) and spreadsheets. When it comes time to submit your tax return, the former will handle everything for you, including presenting your figures in a format acceptable to HMRC. The bridging software/spreadsheet combination requires a lot more work and should be used with caution.
Whatever path you ultimately choose, the time to start considering your options is now, if you haven’t already.
What will MTD for landlords look like in action
From 6 April 2024, landlords will need to:
- Create and store digital records for each of their business transactions
- Send updates of the totals of their business income and expenses every 3 months
- Confirm end-of-period statements
Landlords must, of course, submit their final declaration, just as they would have done with their Self Assessment tax return. This will be done under the new Making Tax Digital for Income Tax Self Assessment rules, either through their compatible software package of choice or through their HMRC online services account.
However, there will be an additional step known as an end of period statement (EOPS). The purpose of an end of period statement (EOPS) is to provide landlords and business owners with the opportunity to:
- Confirm that the quarterly updates sent are correct.
- Include information about any tax breaks or relevant personal income you received during the fiscal year.
- Before submitting your final declaration, make any necessary changes.
The deadline for filing returns online using Self Assessment will be January 31st, as it has been in the past.
What dates will the quarterly updates be due by?
The quarterly updates will apply to everyone who is transitioning to the Making Tax Digital rules for Income Tax Self Assessment. The following are the quarterly submission deadlines:
- 5th August
- 5th November
- 5th February
- 5th May
Failure to submit your updates could result in a penalty.
I own multiple properties, how does that affect Making Tax Digital?
The Making Tax Digital for Income Tax Self Assessment rules apply to your total gross income, not the number of properties you own or have invested in.
One thing to keep in mind here is your software selection. Some software providers will allow you to track multiple properties separately and assign income and expenses to each. This could be advantageous for landlords with large portfolios.
Before purchasing a software package, consider how your company operates.
What about if I own overseas property?
If you are a UK resident who pays HMRC tax, the Making Tax Digital for Income Tax Self Assessment rules apply regardless of whether your income comes from domestic or foreign property investments.
What happens if you fail to register for Making Tax Digital?
It will not end well, as one might expect.
Failure to register for and comply with the new method of submitting your tax return will result in a penalty being assessed to your account. Taxpayers will earn points for late submissions and noncompliance under the new system. When a certain threshold is reached, a penalty is imposed.
Visit gov.uk for more information on penalties and their thresholds.
If you’re wondering what is the best MTD software to use for your HMO, don’t hesitate to get in touch with our team at Rooms in Kent. As experts in the Kent HMO market, we can offer you the advice and information you need. If you’re looking for an experienced HMO property management team, we’re at your service. Call us on 01233 367 367 or drop us an email at lettings@roomsinkent.co.uk to find out more.
