Landlords and Self Employed: Making Tax Digital is almost here

What is Making Tax Digital (MTD) for landlords and self employed?

MTD is HMRC’s plan to move all UK tax reporting to digital filing as well as ensure people report more frequently so they pay the right amount of tax. So this means moving away from paper records and potentially spreadsheets.

MTD is already in force with VAT registered businesses, but over the coming months and years, those who complete a self assessment tax return or run a limited company and pay corporation tax, will also be impacted.

This includes the self employed and landlords, but only those landlords with income that exceeds £10,000 in a given tax year.

If a landlord is self employed or sole trader as well, then the income from the sole trader business, plus income from their rental properties, is combined before determining if they are required to move to MTD.

What will change?

Instead of completing one self assessment tax return a year, you will need to submit a digital quarterly summary, which reports on the approximate tax due for the period.

A final tax return is completed at tax year-end to confirm final tax payment due and tax payment deadlines are currently remaining the same.

Are you in a partnership?

If a property is owned by a business partnership you’re a member of, the partnership itself is responsible for completing MTD compliance reporting, which must be fulfilled by a nominated partner.

Once the quarterly summary information has been submitted for the partnership, the information can then be split between each partners’ digital tax accounts.

What if I am a landlord with more than one property?

If you are a landlord with more than one property, you combine the income from all your properties before determining if you need to move to MTD.

The £10,000 threshold therefore applies to you as an individual, not per property.

Landlords with jointly owned property?

In cases of jointly held property, for example, where you own a property for rent with a spouse, partner or family member, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital for Income Tax.

A nom-dom or non UK resident landlord?

If you’re a landlord who doesn’t live in the UK or you’re a UK “non-dom”, MTD for self assessment rules will only apply to rental earnings from UK properties of more than £10,000 a year, not any foreign income.

If you live in the UK but own property overseas from which you earn more than £10,000 a year in rental income, then MTD applies to you.

You may be able to claim double tax relief if the rental income is also taxed in the country in which your property is located.

MTD Checklist

1.Actively register

You must register yourself for MTD for Income Tax before 6 April 2024. If you’re already registered for Self Assessment, or have already registered for MTD for VAT, you will not be transferred across automatically when MTD for Income Tax begins.

2. Compatible Software

To comply with MTD, you are required to keep digital records for example invoice and expenses data, and kept for the required period after the tax year ends (currently five years).

This must be done using what HMRC calls 'compatible software’. In other words, it must be able to connect directly to HMRC and send your details to them using digital links.

3. Reporting to send to HMRC

You must provide HMRC with quarterly updates using compatible software. By doing this, you can estimate your predicted tax and National Insurance liability throughout the tax year, and likewise plan ahead.

You no longer need to submit an annual tax return, rather you need to complete an end of period statement (EOPS) by 31 January.

If you are landlord, this will detail your property income and allowable expenses.

If you own a sole trader business (or businesses) then you need to submit a separate EOPS for each business.

4. Tax liability payment deadline

By 31 January, you’ll need to pay the balance of any tax and National Insurance contributions due.

Note that the payment on account system will continue, so you may need to make a further payment on 31 July of the same year.

Learn more….

Head to GOV.UK for HMRC guidance on Making Tax Digital for Income Tax.

HMRC has also created videos about Making Tax Digital for Income Tax and you can view a recorded webinar on Making Tax Digital for Income Tax.