Making Tax Digital for Landlords Explained

Making Tax Digital (MTD) for landlords has been in the pipeline for a while, but soon the time will come for property investors turning over £10,000 a year or more to start reporting tax on a quarterly basis and filing online. The key date is 6 April 2023, which may sound a way off yet, but preparation is crucial. Here’s what you need to know as a landlord about Making Tax Digital so that when the time comes, you’re all set to comply with the new rules.

From 6 April 2023, landlords and other investors with a turnover of £10,000 or more per year from property will need to start reporting their tax position and filing their tax returns online. But it’s not just a case of switching over to a new system on deadline day. There is lots to do to get ready, including signing up to software that works in tandem with HMRC’s online systems.

If you’re one of the many landlords who likes a spreadsheet, you’ll be pleased to know that you can carry on using them. However, in order to comply with the new HMRC rules, you’ll have to keep digital records too. The government says this is to avoid mistakes.

How does MTD for landlords work?

Once you’ve settled on and set up your MTD software, you will need to send HMRC quarterly updates of your income and expenditure via your digital tax account. Basically you will be calculating your tax as you go.

At the end of the year, instead of submitting a Self-Assessment tax return, or having your accountant send in a limited company tax return, you sign a declaration that your quarterly returns are accurate. You will then have until 31 January the following year to pay your tax.

If you are VAT registered turning over more than £85,000 then you will already be using MTD to submit your VAT returns. From 2022, MTD for VAT will apply across the board, including those turning over less than the VAT threshold.

If your turnover from property is less than £10,000 a year then you won’t need to set up a digital account, neither will landlords who take lodgers into their homes under the Rent a Room Scheme.

In reality, few landlords will escape Making Tax Digital, although those who cannot file digitally due to being in a remote location or because of a disability may be exempt.

How does the digital tax account work?

Via your digital tax account, you will be able to access all your personal and business tax information. The account is held on a secure government portal, where some of your personal and business information will also be stored. Your accountant, if you have one, will also be able to access the account, but won’t see all of the data as you can.

Details that landlords will need to submit include the amount of rent received each month, expenses, and any percentage that’s offset for personal use, together with invoice dates.

It is not necessary to upload receipts and invoices, but they should be retained by law for six years from the date the corresponding tax return was filed in case of any query from HMRC.

If your property business is a partnership, you can use a single digital tax account, although you’ll need to find MTD compatible software that will record the partners’ details and profit share. You can also use a single account to record income and expenditure for multiple properties.

What are the benefits to landlords of MTD?

As you will be updating your income and expenditure as you go, this will allow you to see in real time how your investment is performing, what your buy to let business is bringing in, and how much it is spending.

The upside is that you will no longer have to spend hours toiling over the dreaded annual Self-Assessment Tax Return at the last minute every year, because you’ll be on top of things year-round. You should find it easier to keep abreast of expenses too, as well as keep a better eye on cash flow.

Using the MTD software makes it easier to share things digitally with your accountant, and your property management agent too. Plus, as you’ll be able to see a snapshot of your tax liability at any point during the year, you’ll not be hit with a surprise bill when the payment deadline comes around.

What happens if landlords don’t comply with Making Tax Digital?

From 6 April 2023, everyone who is due to pay tax must have an online digital tax account.

Landlords have up to one month after the end of each quarter to submit their required MTD information. A declaration that all the year’s submissions are correct must be signed by 31 January following the end of the tax year that the return corresponds with.

Failing to comply with MTD, for example filing late, will result in penalty points. These points will accumulate to a point where a financial penalty will be imposed. Late payment penalties will also apply after 15 days, doubling after 30 days with charges mounting daily. Interest will be charged on outstanding amounts from the due date.

How to sign up for MTD and where to find further information?

Landlords can sign up for MTD now via the government’s website. You will need to be ready with your compatible software, and have your National Insurance number to hand, together with your Unique Tax Reference Number which you’ll find on your last tax bill.

You’ll also need a Government Gateway user ID and password. The one you used for filing your last Self-Assessment tax return is fine, or you can create a new one.

You can find out more about MTD for landlords on the government website.

The homes2let guaranteed rent scheme – one less thing for landlords to worry about

There is enough to worry about as a landlord, MTD included. So what if there was a way to offload some of the everyday hassles, and guarantee your rental income at the same time?

With the homes2let guaranteed rent scheme, you get to do just that. Not only will we take care of everything from tenant sourcing and referencing and all the required legal and safety compliance requirements to preparing your property for incoming tenants, we’ll also pay your rent in full every month, even during void periods.

Want to learn more? You are welcome to get in touch with our helpful team.