Some landlords will have to change the way they file their tax returns from April next year. Read on to find out if you will be affected and what you can do to prepare.
Here’s a friendly reminder that changes in the way HMRC expects the self-employed, including landlords, to manage their tax returns are on the way. The initiative, called Making Tax Digital (MTD), is designed to make the tax process more accurate and efficient by requiring landlords and self-employed individuals to submit records digitally.
It is already mandatory for VAT-registered businesses, and from April it will also become compulsory for some landlords who pay income tax via self-assessment.
Key takeaways
- Under MTD, you must keep digital records of rental income and expenses.
- Instead of submitting one yearly return, you will need to provide HMRC with quarterly updates on your property income and outgoings.
- A final annual tax declaration will still be required.
- All submissions must be made using MTD-compatible accounting software (HMRC provides a list of approved software on its website).
Who will be affected?
The system is being introduced gradually, so not all landlords will need to comply at once.
- From 6 April next year, MTD applies if your annual self-employment or rental income is above £50,000.
- If your annual property income is between £30,000 and £50,000, you will need to comply from April 2027.
- If your annual property income is between £20,000 and £30,000, the deadline is April 2028.
- Limited company landlords are not impacted by these changes.
It is important to note that only self-employment and rental income are included in these thresholds. Pension income or PAYE salary does not count towards the total.
Penalties for missing deadlines
HMRC has introduced a points-based penalty system. For example, if you miss a quarterly update deadline, you will receive a penalty point. Once you accrue four penalty points, a financial penalty will be issued. Staying on top of your digital reporting is essential to avoid unnecessary costs.
Should landlords be concerned?
For many landlords, the change will not be too disruptive, as many already use digital bookkeeping for property portfolios. However, it is vital to ensure that the software you use is MTD compliant or that you have suitable bridging software in place.
You will also need to register for Making Tax Digital, and it is advisable not to leave this until the last minute. By preparing early, you can avoid stress when the new rules come into effect.
Get prepared now
It always pays to be proactive. Take time to read up on MTD, explore what software might suit your circumstances, and speak to your accountant for specific guidance.
While these changes may feel like another layer of administration, they are intended to make the process of filing tax returns simpler and more transparent in the long run.
If you know a landlord who could benefit from this information, please share this article with them.
Important Links
Book a Lettings Valuation
Visit our Royston Facebook Page
Visit our Newmarket Facebook Page
View our Ware Facebook Page
