Making Tax Digital for Landlords: An Essential Guide to Staying Compliant!

The new Making Tax Digital (MTD) requirements are coming into play soon. This may seem daunting and difficult to navigate. If you're a landlord wondering how these changes will impact your lettings, you're not alone. It's crucial to understand how to stay compliant in the near future. So, in this blog we'll break down everything you need to know about MTD for landlords. We will answer your burning questions and helping you transition smoothly. Let's dive in and ensure your property business is ready for the digital shift!

What is Making Tax Digital (MTD) and when does it come into effect?

Making Tax Digital is an initiative by the UK government aimed at transforming the tax system. It hopes to make it easier and more efficient to manage taxes. Making Tax Digital requires sole traders and landlords, to keep digital records and submit their tax returns using digital compatible software. You will also need to file Quarterly Submissions to HMRC as well as submitting your 'final declaration' (aka your year end tax return!). Above all HMRC believe this will reduce errors as well as ensure timely submissions. MTD for Income Tax Self Assessment (ITSA) will begin to be mandatory from April 2026. As a result, this makes it essential to start preparing NOW. You can prepare by choosing the right digital tools and familiarising yourself with the requirements and processes involved in digital record-keeping.

Why is MTD important for landlords?

Making Tax Digital is relevant for landlords because the digital transition also applies to them from April 2026. Importantly, MTD will be phased in over the upcoming years. This is based on your turnover, as outlined below:

• April 2026 – Landlords with combined earnings over £50,000 from rental income and self employment annually will need to comply with MTD for Income Tax.
• April 2027 – For landlords with combined earnings over £30,000 from rental income and self employment, compliance will be required.
• At the time of posting, we are awaiting further updates to confirm when landlords earning below £30,000 will need to join the MTD system.
  

Failure to comply with MTD requirements will result in penalties from HMRC. Therefore, It's crucial to understand the requirements and implement the necessary changes to avoid any fines or disruptions to your property business.

What software can I use for MTD?

There are several MTD-compatible software options available for landlords. Some popular choices include Dext Solo and Xero, both of which are recommended by DL Accounts as our trusted accounting software partners. Likewise, there are other providers such as Quickbooks, Sage and Freeagent. These accounting tools help you maintain digital records, track finances, and submit returns directly to HMRC. For a full up to date list of HMRC approved softwares, you can follow the link here.

Landlord's Frequently Asked Questions:

We've put together some commonly asked questions we have received from clients in order to help you gain a better understanding of Making Tax Digital and the requirements coming into force:

Question: What needs to be reported in the quarterly returns?

Only income and expenses are reported in the quarterly updates. Capital items (e.g., equipment) are factored into your tax return at the year end final declaration. You will be able to submit up to 10 days before the quarter ends if you're sure no more transactions apply in the quarter.

Question: What if a property is jointly owned?

Joint owners need to apportion their share of property income and expenses and test this against the threshold. For instance, where you have a property generating £70,000 and this is split 50/50. Each owner has £35,000 for the purpose of the threshold test. Consequently, if this is their only source of income, MTD would apply from April 2027.

Question: What if I have multiple properties?

Under MTD, landlords with multiple properties will report all their UK property income together. There will be no requirement to prepare individual quarterly reports for each UK property. If you have foreign property income this would also have to be MTD. You would need to report this separately to the UK Property income.

Question: Will there be penalties for missing quarterly submissions?

In short, yes! By default, the submission quarters will run in line with the tax year. Deadlines for submissions will be one month and 7 days after the quarter has ended. Failure to submit within this time frame will result in a penalty point. After 4 points, a £200 penalty charge will apply.

Question: Can I still use spreadsheets?

While spreadsheets can be used as part of a digital record-keeping system, they must be paired with a MTD-compatible bridging software that can submit the necessary data to HMRC. In other words, you can use a spreadsheet but the requirement for software still applies. In conclusion, you are probably better off transitioning fully to MTD software to save you time and effort!

Question: What about other sources of income?

Income from employments and dividends etc do not affect the MTD mandate. Only the qualifying turnover from all self-employments and rentals are taken into consideration. If this is above the threshold, then MTD for Income Tax applies.

How do I transition to MTD smoothly?

1. 1) Choose the Right Software: First make sure to select an MTD-compatible software that suits your property business needs.
2. 2) Digitalise Your Records: Start keeping digital records of all your lettings and expenses.
3. 3) Stay Informed: Keep up with HMRC updates and ensure you understand the MTD requirements.
4. 4) Seek Professional Accounting Help: Consider consulting with a tax advisor to ensure you’re on the right track.

Need Help? Contact Us Today!

Here at DL Accounts we have MTD Compliance Packages available ready to support you with the ever changing tax landscape. Our Compliance Packages include free MTD Compliant Software (Dext Solo) to help you with the digital accounting transition. These start from £400 plus VAT per tax year. Similarly, we also have full Peace of Mind Packages available for Landlords and Sole Traders which includes Xero Software. Contact us today on 01726 216110 and a member of the accounting team will be able to advise you on the best accounting solution for your needs. Alternatively, you can get a personalised quote by filling out our online Enquiry Typeform Here.