Making Tax Digital – A quick guide for Landlords

Making Tax Digital (MTD) applies to all landlords, self-employed and partnerships whose gross income from those sources combined exceeds £10,000 a year. MTD is part of the government’s initiative to transform the tax system and make it easier for individuals and businesses to get their tax right and keep on top of their affairs. This 5 step guide will cover the foundations of the legislation and provide an overview of the changes you will need to be aware of going into the new year.

1. What will stay the same?

There will be no changes made to the existing payment deadlines for income tax, the underlying tax rules and the level of detail of information and headings will remain the same as the current self-assessment tax return.

2. Who does this apply to?

Only individual landlords who don’t have a corporate structure for their properties will need to prepare for the changes in April 2024 and start submitting their income tax returns through MTD-compatible software. If your property portfolio is in a limited company, nothing is going to change until 2026 at the earliest.

3. What is considered ‘compatible software’?

You’ll need to keep your digital records using compatible VAT record-keeping software that connects to HMRC systems, which allows you to digitally store and update records such as receipts and VAT invoices. It must be able to; keep and maintain digital records specified in the regulations, prepare VAT returns using these records and communicate with HMRC through a digital link.

4. Landlords will need to start filing their tax returns quarterly.

From April 2024, landlords with an estimated income of £10,000 or more from a property portfolio will need to start filing their returns detailing income and expenses, digitally – and quarterly, on top of the end of year statement. This amounts to an extra four filings you will have to make from 6^th April, 2024 – with a fifth filing that collates all the information from the first four into one document.

5. There will be a new penalty point system…how will this work?

To encourage compliance with submission dates, HMRC have introduced a new penalty point system. The threshold for the number of points will vary depending on how often and how many the taxpayer is required to submit. When a certain number of points has been reached, a financial penalty of £200 will be charged. For self-assessment taxpayers, including landlords, that threshold will be four points and 12 months. However, the points expire after two years.

6. What are the exemptions to the MTD rules?

For every new piece of legislation, there will always be exemptions that can be applied for through the HMRC website and granted accordingly. The government has made it clear that, if you are an individual taxpayer who can’t comply with digital tax returns for genuine reasons, you could be exempt. This will be applied on a case by case basis, taking into account age, disability, remoteness of location or if your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

If you have any questions as to how this legislation affects you and your business, please feel free to call us and speak with Adam Coffin, our senior sales consultant who can advise you further.