There may be trouble ahead. You may not have heard much about Making Tax Digital for Landlords, but if you are a landlord that pays tax via self assessment then this is something you will have to deal with sooner rather than later. MTD for ITSA to give it its correct and snappy title (Making Tax Digital for Income Tax Self Assessment) is part of HMRC’s mission to build a trusted, modern tax system. Life doesn’t get much more exciting.
What is Making Tax Digital for Landlords
Making Tax Digital is about how tax payers shift from old school paper tax records and filings, to a full digital experience. You’ll probably already have experienced some of the digital changes HMRC have brought in, such as your digital tax account, and filing your tax return online. I for one don’t miss completing paper tax returns.
Basically MTD for Landlords will mean a shift from filing a self assessment tax return once a year, often several months after the end of the tax year. Instead you will have to make quarterly digital tax filings with pretty tight deadlines. For many of our small landlord clients this will be a massive culture shock. But don’t worry, if you are reading this you are ahead of the curve and have got time to get yourself organised.
This will apply from April 2023
The initial rules will kick in from April 2023. In just over 18 months. That means that you have got the current tax year (2021-22), and the next tax year (2022-23) where you can continue to just file once a year. The 2023-24 tax year will be very different. The first quarter where you will have to submit a digital return will be for April, May and June 2023. Thanks to the weirdness of the tax year end date that technically covers 6 April to 5 July 2023.
There is a threshold, so if your property rental income is low (below £10,000 per year) then you won’t have to register. You would have to comply with MTD for Landlords from the beginning of the tax year after you submit a self assessment tax return that shows your property income is £10,000 or more. The threshold is based on the total property rental income for you as a taxpayer, not per property. And they look at the rental income, not the profits.
It gets a bit more complicated than that if you are also self employed. Your sole trader sales get added to your property rental income to see if you have gone over the £10,000.
What will I have to do
- You will have to register for MTD for ITSA before 6 April 2023, or get your accountant to do it for you. This applies even if you are already registered for self assessment;
- Critically you will also need to maintain digital records. The days where you could just tot up the money received in the tax year and fudge through some expenses are very definitely numbered;
- You will have to send HMRC digital quarterly updates on your property income and expenses. The first quarterly update will have to be submitted by 5 August 2023;
- There is also an end of period statement that needs to be submitted by 31 January following the end of the tax year. If you are also a sole trader you’ll have to submit a separate one for your self employed income;
- You will have to provide HMRC with a final declaration of all your income;
- Lastly you may still have to file a self assessment tax return, depending on your other income!
The amount of red tape is effectively going to increase significantly.
UK landlords of overseas property will also have to register
UK resident landlords with foreign property rental income that is £10,000 a year or more will also have to sign up for MTD for Landlords. It might be a bit harder to figure out whether your rental income is above the threshold depending on what exchange rate you use. If in doubt use the exchange rates that HMRC publish each year.
Hang on a sec, will this change when I have to pay tax?
Tax payment deadlines definitely won’t change during this parliament. However based on the March 2021 Tax Day Announcements the payment of income tax will eventually be made closer to when the income is generated. Watch this space!
How do I get started
There are a few things you can start to look at sooner rather than later to make your life a bit easier:
- Make sure that you have a completely separate bank account for your property rental income. This will help you to split everything out more easily;
- Look at signing up for accounting software such as Xero so you have a head start on keeping digital records;
- There is a pilot program running at the moment which you may want to look at if you are really keen;
- Keep an eye out for when you can sign up for MTD. Make sure you get that done and dusted before April 2023;
- Talk to your accountant to find out what their plans are to help you with Making Tax Digital.
If you are interested in moving onto Xero then get in touch and ask about our early bird pricing for Xero conversions for landlords.