Making Tax Digital (MTD) for Landlords. What You Need to Know
Don't worry! This isn't yet another tax that landlords have to panic about. This is about the introduction of Making Tax Digital (MTD) for Income Tax as a landlord, including how the regulations will impact you and what you’ll need to do to prepare for the changes coming into effect in April 2024.
In April 2022, the government introduced stage one of Making Tax Digital (MTD) in the UK.
MTD is essentially HM Revenue & Customs medium term plan get small businesses, self-employed workers and landlords to submit their tax calculations completely online through compatible software. The plan is as follows:
- Making Tax Digital for VAT requires all VAT-registered businesses to keep digital records and use MTD-compatible software to submit their VAT returns electronically and is already in place.
- MTD for Income Tax, also known as MTD for Income Tax Self Assessment (MTD for ITSA), will replace the current system of annual Self Assessment tax returns. For landlords and self-employed business owners earning above £50,000, MTD for Income Tax will come into effect in April 2026.
- In April 2027, the income threshold will be lowered to £30,000, and all landlords earning above this amount annually will need to comply.
- For general partnerships, and those earning below £30,000 annually, dates are yet to be confirmed.
- MTD for Corporation Tax is expected to be the next stage in the initiative. HMRC has advised that 2026 is the earliest it might come into effect.
Making Tax Digital will apply to anyone who is registered to pay Income Tax and National Insurance through Self Assessment.
MTD for Landlords
A recent survey by property finance platform, Hammock, found that 21% of landlords are in the dark over MTD. It found that just under half of landlords still use spreadsheets (33%) or physical files (12%) to manage their property finances.
So how will this affect landlords and will it apply to all landlords?
The main criteria that will determine if MTD will be necessary is whether or not you earn taxable income from either property or business and property. Property types include:
- Residential property
- Furnished Holiday Lettings (FHL)
- Commercial property
- Non-UK overseas property
If you do meet these requirements, then you will be required to use MTD-compatible software to keep records and make submissions to HMRC from April 2026 if you meet the earnings threshold.
However, if you earn under the £10,000 a year threshold, you can continue to use the current Self Assessment system as normal until further notice.
If you do meet the necessary criteria, HMRC will require you to use software to:
- keep digital records of your property and/or business income and expenses
- send quarterly updates of your property and/or business income and expenses to HMRC; 5th August, 5th November; 5th February; 5th May
- finalise your property and/or business income by submitting an end of period statement (EOPS) and final declaration to HMRC
Landlords with Limited Companies
MTD isn’t applicable to landlords who have registered as a limited company. Instead, you can continue sending limited company accounts and Corporation Tax to HMRC and Companies House.
What are the benefits to Landlords?
The overall objective is to switch all UK tax services from paper to digital which will obviously save time, effort and trees!
However, the government also believe that submitting tax information in this way will help landlords avoid making common mistakes with tax. Lets be honest, making errors on your tax return can be very time consuming to correct and can also be potentially very costly.
But it's not all about simply helping landlords. It is estimated that the current process results in tax return errors that costs HMRC approximately £10billion each year.
What software is compliant with MTD?
Once Making Tax Digital is up and running, you, your accountant, or your tax advisor will need to use compatible software to update and report digital records of your rental income and expenses to HMRC.
If you, or the third party advisor that you employ, already use a piece of software, then check if it’s MTD compliant or not. The key points that make it compatible with MTD are:
- You can maintain records as required by the regulations
- You can finalise your taxable business income and submit your declaration at the end of the tax year
- It allows you to communicate with HMRC digitally through their platform.
- You can prepare and send quarterly updates and statements to HMRC from your tax records
Need Making Tax Digital help?
If you do meet the criteria and are generating over £10,000 a year in taxable income and are confused by the upcoming MTD changes, then don’t panic. Our trusted tax advisors at Cedar + Co Chartered Accountants can answer your questions and offer any advice that you need.