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Making tax digital for landlords has been on the cards for some time, and now the government has finally come up with the start date for landlords and other property investors to report tax quarterly under the new system.
From April 6, 2024, anyone making more than £10,000 a year from property should be ready to start recording and filing online. For landlords, that £10,000 figure refers to rental income, not profit – in a nod to former chancellor George Osborne’s changes to landlord tax relief.
Be warned; it’s not just a case of switching to a new online tax reporting system. You must be ready for the big day in April 2024 by signing up for software which aligns with HMRC's online process.
Plenty of landlords favour spreadsheets, and it’s fine to continue with these. You can also keep writing up your accounting ledgers too if you like. But, to comply with HMRC’s new rules, you must also keep digital records. The reason for this, says the government, is to prevent mistakes, and they believe the digital records will cut out mistakes from HMRC and landlords.
Once you’ve set up your chosen software you can update your income and expenses as you go– and on the move, if you have a mobile app. Not only that, but you can see instantly what your business is spending and bringing in.
Regular reporting should stop landlords spending hours slaving over the dreaded annual self-assessment tax return every year because they tend to leave tax until the last minute.
Updating your accounts as you go should mean you are less likely to miss out on expenses because you’ve lost receipts. You can also keep a better eye on cash flow and it is easier to share tax details with your accountant or letting agent since they’re all in the one place.
Another plus is you’re more likely to be able to pay your tax bill – and avoid late paying penalties - if you already know what to expect.
In terms of the government, it’s a massive exercise in migrating the UK current tax system into a digital version.
Other countries, like Australia, have already achieved this so even though the UK government is way behind its planned schedule for the move, HMRC are aware that a 100% digital tax system is something that can be achieved… eventually.
You’ll send HMRC quarterly updates of your income and expenses via your software and HMRC digital tax account. It could be as simply as clicking a button.
Essentially it allows your tax to be calculated as you go. At the end of the year, instead of sending in a self-assessment tax form, or getting your accountant to send in a limited company tax return, you sign a declaration that your quarterly returns are accurate.
You’ll then have until January 31 the following year to pay your tax, as usual. VAT-registered businesses with a turnover of more than £85,000 a year should already use MTD – although due to the coronavirus lockdown, the deadline for getting this in place is now 2021.
Meanwhile, in 2022, MTD is due to be rolled out to companies with a turnover of less than £85,000 for VAT. Landlords earning less than £10,000 a year from property won’t need to set up a digital tax account, and neither will landlords who take lodgers in their home under the Rent A Room scheme.
Few landlords will escape MTD. Some who cannot file digitally due to their remote location or because of a disability and those whose religious beliefs stop them using a computer may also be exempt.
You’ll be able to access all your personal and business tax information via a digital tax account on a secure government portal. Some of your personal and business information will also be stored there. If you have an accountant, then they will can access the digital tax account but not all of the data.
The details you have to keep in your digital account includes the amount of rent you receive each month, expenses and any percentage offset for personal use. You should also report invoice dates.
There’s no need to send HMRC images of receipts and invoices but you should scan them anyway, and store them in a separate file. BY law, you should keep them for six years from the date the tax return was filed in case HMRC has any queries over your figures.
Landlords and property companies will have up to a month after the end of every quarter to send in their MTD information.
A declaration that the filings are correct must be signed by January 31 following the end of the tax year that the return applies to. This should give plenty of time for any adjustments to be made.
The government is still considering MTD penalties for taxpayers. For failure to comply with MTD, which is mainly late-filing accounts and returns, taxpayers will be given penalty points. How many points depends on how late the filing is with the first penalty points marked up after the filing is 15 days late.
Eventually, the points stack up for persistent late filers, just like points on a licence for drivers. Then, a financial penalty is imposed, and after two years, the penalty points are reset to zero.
Late payment penalties also click in after 15 days, double after 30 days and continue with charges mounting daily. Interest is charged on outstanding amounts from the due date.
The good news is that the government is likely to grant a grace period for the first year, until the MTD scheme is embedded into the minds of all taxpayers.
Landlords can sign up for MTD now via the government’s website. Before doing so, you’ll have to use software compatible with the government’s system.
You will also need to have your National Insurance number to hand, as well as your Unique Tax Reference number (this can be found on your last tax bill).
You’ll also need a Government Gateway user ID and password used for filing your last self-assessment return or create a new one when you sign up. T
hen it’s just a case of pressing the Sign Up Now button and filling in the form.
MTD for landlords involves a significant change in how accounting and tax records are kept and reported. Although April 2024 seems a long way off, changing the way the business works may take some time for large property businesses or those unfamiliar with keeping digital records.
To help, here are the answers to the most asked questions about MTD for landlords.
Six software providers have been approved by HMRC, with another three have packages in development aiming to go online before the launch date of MTD for landlords in 2024. All offer a free trial.
A list is on the HMRC website. Click on the software package link to go to the developer’s site where you’ll find instructions on how to use the app, along with a download button.
Landlords who currently use property management software should check that this will be updated as MTD compliant in time for the new measure.
You can register for a single account if you both work in one business. You will have to find software that will record a partner’s details and profit share. Not all software will do this, so you may have to search a little harder to find the right software package.
There’s no need to have numerous individual tax accounts, and you can total the income and expenses for all properties in one digital tax account.
You might want to keep individual accounts anyway outside of the HMRC process, as a means of identifying which properties are doing well and those, you’d be better off selling.
They’ve estimated that poor filing of tax returns due to inaccuracies in reporting cost the Treasury around £8.5 billion for 2018 to 2019 tax year. Digital records should make this less likely by sending information directly to HMRC.
Apart from the exemptions listed above, everyone who is due to pay tax must have an online digital tax account. The old system will be completely phased out eventually.