The October 2021 budget announced that “Making Tax Digital” for income tax self-assessments for landlords with income over £10,000 would be delayed by one year until 6 April 2024. In this blog we explore what “Making Tax Digital” (MTD) is, how it will affect our residential lettings landlords and how they will need to comply.
MTD is the HM Revenue & Customs (HMRC) plan to digitise the tax system for VAT, Income Tax Self-Assessment and Corporation Tax for businesses and individuals. Landlords must use recognised software to keep digital records and submit VAT to the HMRC. The aim is to streamline tax returns, making filing easier and more efficient. VAT-registered businesses with a turnover of more than £85,000 a year should already comply with MTD and those with a turnover of less than £85,000 will need to comply from April 2022. From 6 April 2024 MTD will apply to Income Tax Self-Assessment for all self-employed business owners, and landlords with an annual income over £10,000 (rental income rather than profit).
Unfortunately, it is not a case of simply switching over to a HMRC recognised software system on the day of introduction, landlord’s need to sign up before the 6th April 2024. Thereafter landlords will be required to send the HMRC quarterly updates of their income and expenses via their chosen software which in theory allows tax to be calculated as they go. Landlords and property companies will have up to a month after the end of every quarter to submit their MTD information. At the end of the year, instead of sending in a self-assessment tax form, or for limited companies asking an accountant to file a tax return, landlords will just need to sign a declaration that their quarterly returns are accurate. This declaration must be signed by January 31st following the end of the tax year that the return applies, and tax paid as usual. Penalties will be charged for failing to comply with MTD and failing to meet the deadlines.
Landlords earning less than £10,000 a year from their rental property will not need to set up a digital tax account, and neither will landlords who take lodgers in their home under the Rent A Room scheme (earning up to a maximum of £7,500 per year tax-free from letting out furnished accommodation in their own home). There will be a few exemptions for example where it’s not practical to use software due to age, disability, location or another reason, or where landlords are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records, but few will landlords will escape this requirement.
Current digital software includes the likes of QBOL, Sage One, Xero, FreeAgent and you can find a list of HMRC compatible software here. It may be by 2024 new solutions are developed for example the challenger banks allowing landlords to categorise income and expenditure direct on their banking Apps, however our sister company Resident via their second software Data Hub will be developing a compatible software in their Module 3 release so, in a nutshell, this change is coming but Alexandre Boyes has it covered making this change as simple and pain free as possible for our landlords.
This blog is meant for general information only. AB are not experts in tax and recommend landlords seek professional advice. Posted March 2022
