Making tax digital for landlords has been on the cards for some time, and now the government has confirmed the start date for landlords and other property investors to report tax quarterly under the new system.
Therefore, from 6th April 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.
To be ready for MTD you will need to sign up to software which links with HMRC’s online process.
Plenty of landlords prefer spreadsheets (and dare we say “shoeboxes”) and it’s OK to continue with these. However, to comply with HMRC’s new rules, you must also keep digital records capable of digital submission each quarter.
Once you’ve set up your chosen software, you can update your income and expenses in real time. Not only that, but you can see instantly what your property business is spending and earning with some software allowing you to administer all aspects of your property portfolio including rent arrears, tenancy documents, certification statements etc.
Regular reporting should stop landlords spending hours preparing to send information to their accountants to complete the self-assessment tax return every year because they have left it until the last minute. It is therefore essential you choose software that is easy to use, so you are more likely to keep on top of things.
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.
For advice on selecting suitable software, get in touch.
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 (as long as everything is up-to-date). Essentially, it allows your tax to be calculated as you go.
At the end of the year, any other income will be added such as dividends or bank interest to produce a final End of Period Update.
If you have other business interests, say you also are a sole trader or partner in a partnership, you will have been submitting quarterly returns via MTD for Income Tax separately. All this information will flow into the final End of Period Update, and you are required to sign a declaration that your quarterly returns are accurate. You’ll then have until January 31 the following year to pay your tax.
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. However, use of software is no bad thing to keep on top of your affairs, whatever your income.
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 can access the digital tax account and will of course ensure your tax returns are complete and correct and ensuring all claims for tax relief are made.
There’s no need to send HMRC images of receipts and invoices, but you should scan them anyway, and store them, ideally in the software, just in case you need to show these in the event of a tax inspection.
Landlords will have up to a month after the end of every quarter to send in their MTD information. These will tie in with the June, September, December, and March quarters.
The declaration that the filings are correct must be signed by January 31 following the end of the tax year that the return applies to (just like under the current self-assessment tax return system). This should give plenty of time for any adjustments to be made.
The government is considering MTD penalties for taxpayers, and it is likely there will be a soft landing with a delay to penalties until the systems has fully bedded in.
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.
For more information on Making Tax Digital and how this will impact you and your business, then please get in touch.
We recommend getting sorted now, so you can start to benefit from all the other feature’s software can offer. As the deadline to start MTD approaches HMRC, advisers and accountants are likely to be inundated with requests for support so for help please get in touch, and we can advise on the best solution.