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What landlords need to know about Making Tax Digital

15th July, 2022

Making Tax Digital (MTD) has already impacted VAT, with income tax and corporation tax due to follow in the coming years. There are significant implications for those who pay income tax via self assessment (ITSA), including landlords with taxable income of more than £10,000 a year. In this article, Clayton & Brewill highlights what landlords need to know about MTD for ITSA.

MTD forms a crucial building block in the government’s 10-year strategy, which aims to make the tax system more resilient and effective, boost business productivity, and better support taxpayers. So, if you’re a landlord, what do you really need to know about Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)?

When does MTD for ITSA apply?

MTD for ITSA will apply from April 2024. The rules require landlords and those who are self-employed and earning above £10,000 annually to use compatible software to keep digital records and submit updates to HMRC. This applies to rental properties and furnished holiday lets.

Previously set to come into force in 2023, MTD for ITSA was delayed by a year to give businesses and HMRC more time to prepare in light of the pandemic. You can read the government’s full statement here.

What does it mean for landlords?

Yearly tax returns will be replaced with four quarterly updates, an ‘End of Period Statement’ (EOPS) and a ‘Final Declaration’.

Quarterly updates should contain details of your income and expenses. In your EOPS, you need to make any final adjustments to your accounting, claim reliefs, and confirm all information is complete and correct. The Final Declaration is where you submit relief claims and declare any additional income such as savings and investment income.

Landlords who own more than one property should report earnings and expenses via MTD for ITSA for all properties together; you do not need a separate digital account for each property. The £10,000 MTD ITSA threshold applies per taxpayer, not per property.

How can landlords prepare for MTD for ITSA?

1. Sign up ahead of time: As previously mentioned, the digital start date for those accounting for income for property through MTD for Income Tax is 6 April 2024. Landlords should try and sign up ahead of this deadline so that they can get used to the software.

2. Consider joining the pilot scheme: This lets you sign up for MTD for ITSA earlier than the mandated digital start date. However, you can only join if your income is from UK properties (i.e., not overseas). Your self assessment returns and payments must also be up to date. Software support for MTD for ITSA is limited to only a handful of vendors right now; please get in touch if you’d like Clayton & Brewill to find out if you are eligible.

3. Update to accounting software that’s ready for MTD for Income Tax: You must use software for your accounting relating to income tax, and it must be compatible with MTD for Income Tax. You should ensure any software you use is updated in time.

Can your accountant sign you up for MTD for Income Tax?

Yes. Please do contact the Clayton & Brewill team today about signing up for MTD for ITSA. We can help ensure you are fulfilling your legal obligations and enjoying the benefits of automation and digitalisation.

Please call us on 0115 950 3044 or send us an email for further information.

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