The thinking behind Making Tax Digital is to make it easier for individuals and companies to manage their tax affairs and “get their tax right”. HMRC believes that digitising the UK tax system through Making Tax Digital will help to prevent avoidable mistakes that are believed to cost many billions of pounds a year in lost tax revenue.
Making Tax Digital is being phased in over several years and it’s already impacted VAT with changes to come on Income Tax and Corporation Tax. There are significant implications for those who pay Income Tax via Self Assessment, including landlords with taxable income of more than £10,000 a year.
When will Making Tax Digital for Income Tax Self Assessment be introduced?
This was due to be introduced from 6 April 2023, but the government has delayed until 6 April 2024, because of COVID-19 and following feedback which called for more time.
This means landlords need to comply with requirements from 6 April 2024 if their taxable income is more than £10,000 a year, whether that’s just from rent or rent and self-employment. This applies to rental properties and furnished holiday lets.
Landlords still need to file a Self Assessment tax return (SA100) for the next tax year, but once you do, you won’t have to complete a tax return (SA100) every year.
You may be able to sign up voluntarily now for MTD for Income Tax if:
· you’re a UK resident
· you’re registered for Self Assessment as a landlord and
· your returns and payments are up to date.
Signing up voluntarily enables you to get the necessary software in place and get used to new reporting requirements ahead of 2024.
Making Tax Digital for ITSA-compliant software
You will need to use MTD-compatible software to maintain and report digital records of your rental income and expenses. If you already use software to maintain your financial records, HMRC recommends asking your provider whether their software is or will be MTD-compatible. If not, you’ll need to find out about other options.
GOV.UK lists software that is compatible with Making Tax Digital for Income Tax. Making Tax Digital for Income Tax-compatible software can:
· maintain business records as required by the regulations
· prepare and send quarterly updates and end-of-period statements using the information maintained in your records
· finalise your business income and submit your declaration after the end of the tax year
· communicate with HMRC digitally through HMRC’s (application programming interface – API) platform.
If you currently maintain financial records in paper form, you’ll need to find an MTD-compatible software alternative and learn to use it instead.
How will the new MTD for ITSA reporting process work?
Updating your MTD for ITSA-compliant software records on the transaction date (ie when you pay money out or receive taxable rental income) is recommended or as soon after as possible. You must do it before your quarterly update is submitted for that period.
The MTD-compliant software will summarise your figures, which you must send online via your HMRC digital account (you will get up to a month after every quarter-end). It will also show you how much tax you owe based on the information you’ve entered, enabling you to better budget for paying your tax bill.
At the end of the tax year, you’ll need to finalise your rental income and submit a final declaration, confirming that the updates you’ve provided are accurate, with any accounting adjustments made and then you’ll receive your tax bill. You must submit your final declaration and pay the tax you owe by 31 January the following tax year or late-submission/payment fines will apply.
What if I’m a landlord with more than one property or I co-own?
You report your earnings and expenses via MTD for ITSA for all of your properties together, you don’t need a digital account for each property. The £10,000 MTD ITSA threshold applies per taxpayer, not per property. If a property is owned by a business partnership, you’re a member of, the partnership is responsible for Making Tax Digital compliance, which must be fulfilled by a nominated partner.
Quarterly summary information concerning the share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts and individual tax liability will then be calculated.
In cases of jointly-held property, for example, where you own a property for rent with a spouse, partner or family member, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital for Income Tax.
If you’re a landlord who doesn’t live in the UK or you’re a UK “non-dom”, MTD for ITSA rules will only apply to rental earnings from UK properties of more than £10,000 a year. If you live in the UK but own property overseas from which you earn more than £10,000 a year in rental income, MTD for ITSA requirements apply. You may be able to claim double tax relief if the rental income is also taxed in the country in which your property is located.
