Did you know that HMRC plans to introduce new rules on how landlords file their tax returns?
Here’s an update on what these changes involve and a timeline for when they’ll come into force.
Making Tax Digital (MTD) is an initiative designed to streamline the tax system by fully digitising it.
As MTD has been mooted for quite some time and its implementation delayed twice already, you may have already heard about it.
But if you’re hazy on the details or have buried your head in the sand about it because tax talk bores you silly, here’s a reminder.
MTD will require landlords and the self-employed to:
- Keep digital records of all income and expenditure.
- Send HMRC quarterly updates.
- Submit an end-of-year final declaration.
- Use approved third-party software when reporting to HMRC.
HMRC plans to phase in the new system gradually. The current timeline for MTD compliance is:
- 6 April 2026, if your annual business or property income tops £50,000.
- 6 April 2027, if your annual business or property income tops £30,000.
There is no news yet about those with incomes below £30,000, but no doubt that will come later.
What happens to landlords who don’t comply?
HMRC has concocted a (somewhat convoluted) points-based penalty system for people who fail to comply. If, for example, you submit incorrect information or don’t use the appropriate software, you’ll accumulate points. When you accrue a certain number of points, you’ll be fined. The more points, the bigger the fine.
Will MTD have a significant impact on landlords?
A well-organised landlord who already maintains digital records may just have to check if their software is MTD compliant and adjust to more regular reporting deadlines.
However, if you’re the kind of person who always has a last-minute panic when your tax return deadline looms, and files receipts down the back of the sofa, you’re in for a big change.
Whichever category you fall into, it’s worth thinking about MTD now. Even though its introduction is still some way off, the deadlines will come around quickly enough.
Also, it can take time to implement a new system, and you may need to purchase new software. As you accumulate points for every error in your reporting, the number of fines you rack up could quickly grow if you’re sloppy.
Many landlords find going digital with their accounts a more efficient way to run their portfolios.
It means all relevant records are in one place and easily accessible, enabling them to monitor cash flow closely.
If you’d like more advice on preparing for MTD, please contact us here at Knightsbridge Professional Lettings today.