How Does Making Tax Digital Affect Landlords?

Making Tax Digital for Income Tax (MTD IT) is transforming the way landlords and business owners report what they earn to HMRC. The new rules are rolling out in stages but even if they don’t quite affect you yet, it’s vital to familiarise yourself with them. Being fully compliant when the time comes is a lot less hassle than getting an awkward letter from HMRC.

This guide explains who is affected by Making Tax Digital, and what to do if you get property income.

What is Making Tax Digital Income Tax?

Making Tax Digital – or MTD for short – aims to revolutionise the way we manage tax in the UK by making it easier for taxpayers to get their taxes right.

Making Tax Digital for Income Tax (MTD IT) is the next phase of the MTD initiative. For some people it will transform the existing process of submitting annual Self Assessment returns, replacing it with quarterly updates followed by a final tax return.

When does MTD Income Tax start?

The MTD Income Tax timeline is based on how much your “qualifying income” is, and when you earn it. For these purposes, your qualifying income means the total amount you get from self-employment and/or property:

If you earn money from self-employment and property, the threshold applies to the total gross income (what you get before deducting tax and expenses) from those activities combined.

What does a landlord need to do for Making Tax Digital?

First of all, it’s important to be aware you won’t be automatically registered for MTD IT, even if you already use MTD for VAT, or are already registered for Self Assessment.

You’ll need to make sure you register for MTD Income Tax in plenty of time!

You can volunteer to register early even if you don’t meet the earnings threshold just yet, but you must follow the rules once you sign up.

Start keeping digital records

Many landlords may already be familiar with the idea of keeping digital financial records. Under the new MTD rules, keeping business income and expense records digitally becomes compulsory for all landlords and self-employed people whose income is more than the MTD threshold.

There’s no need to wait around until the MTD for Income Tax changes come into effect. In fact, finance professionals strongly recommend getting to grips with digital financial recording as soon as possible. It’s honestly not just us saying it.

Send MTD Income Tax updates to HMRC

The most significant change business owners and landlords will see under MTD is the regularity of financial reporting. Instead of filing an annual Self Assessment tax return, those digital records you’re keeping about all your income and expenses from self-employment and/or property will need submitting to HMRC on a quarterly basis.

Then, at the end of the year, you will also need to submit a final tax return which includes all your income from every source, your expenses, and any other allowances or tax relief you want to claim.

When do I need to send quarterly updates for MTD Income Tax?

The deadlines for sending each quarterly update using MTD-compatible software (such as Pandle!) are:

You’ll need to send a separate update for each trade or property business. So, if you own multiple properties you can group them all in one update. But, if you have multiple sole trader businesses, you will need to submit an update for each one.

Is the MTD Income Tax Return separate to a quarterly update?

Yes! You’ll need to send quarterly updates throughout the year, but then you’ll need to send a tax return which includes everything, not just your qualifying income for MTD IT.

Do I still need to make payments on account with MTD Income Tax?

Even though the process of reporting your income and expenses is changing with MTD Income Tax, the requirement for making payments on account isn’t.

Payments on account are made by self-employed people whose tax bill for the previous year was £1,000 or more. The payments are made in two instalments, each of which is half of the previous year’s bill.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.