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HMRC's Making Tax Digital (MTD) starts on April 6 for landlords earning £50,000 or more per year, but no start date has been confirmed for MTD for partnerships in the same earnings bracket.
Partnerships must continue to file self-assessment returns each year, while individual partners follow MTD only for income from self-employment or property, ignoring partnership income for MTD purposes.
That applies even if the partnership derives income from letting property.
However, partners owning buy-to-lets don't get a free ride - they must stick to the current rules for declaring property profits for partnerships.
When introduced, MTD for partnerships will demand digital record-keeping and quarterly updates, but the phased rollout details are still pending.
Property partnerships can be confusing, but landlords need to know if they belong to one.
A business partnership is a formal arrangement in which two or more "persons" (individuals or companies) jointly operate a business with a view to profit.
Owning a property jointly with one or more others is a business partnership if the owners are developing and selling properties.
Owning a property jointly with someone and letting it out are not the same.
Joint ownership may seem like a partnership, but letting property is treated as an investment and taxed differently from a property partnership. To change from a joint owner to a property partner, HMRC expects to see significant business activity rather than passive investment.
HMRC discusses the difference between joint ownership of property and property partnerships in a technical manual for tax inspectors
MTD for income tax is not mandatory for business partnerships or limited liability partnerships (LLPs).
Partners should continue with self-assessment and continue to file annual partnership tax returns under existing self-assessment arrangements.
For individual partners, partnership income is excluded. Any share of partnership profits is excluded from income thresholds that trigger MTD.
Partners must comply with MTD for any other self-employment or property income if the combined turnover is more than the MTD thresholds (e.g., £50,000 for 2024/25, moving to £30,000 for 2025/26).
HMRC intended to extend MTD to partnerships, but the timetable has been deferred indefinitely.
The government believed that partnerships needed more time to comply with MTD and, given a stuttering economy, could not afford to be ready.
When MTD for partnerships begins, partnerships will be responsible for digital record-keeping and quarterly updates, replacing the current annual self-assessment return process.
Although MTD is some time off for partnerships, it's wise for many to prepare for the change by switching to keeping digital records. In most cases, partnerships can use the same MTD software already available to individuals.
Watch out for more information about personal tax, MTD and partnerships from HMRC online