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Making Tax Digital for Landlords

September 20, 2021 - by mindadmin

 

It’s possible that there’ll be some difficulties ahead. You may not have heard much about Making Tax Digital for Landlords, but if you are a landlord who pays tax through self-assessment, you will need to deal with it sooner rather than later. HMRC’s mission to build a trusted, modern tax system includes MTD for ITSA (Making Tax Digital for Income Tax Self Assessment) is an important aspect of HMRC’s objective to create a trustworthy, contemporary tax system. It doesn’t get much more interesting than this.

What are the Benefits of Making Tax Digital for Landlords?

Making Tax Digital is all about helping taxpayers transition from paper tax records and files to a fully digital experience. Some of the digital improvements HMRC has implemented, such as your digital tax account and filing your tax return online, are likely to be familiar to you. I, for one, am not a fan of filling out paper tax returns.
MTD for Landlords entails a transition away from filing a self-assessment tax return once a year, frequently several months after the tax year has ended. Instead, you’ll have to file digital tax returns on a quarterly basis, with tight deadlines. This will be a culture shock for many of our small landlord clients. But don’t worry, if you’re reading this, you’re ahead of the game and have plenty of time to organize yourself.

This will take effect from April 2023:-

The first set of guidelines will take effect in April 2023. In barely over a year. That implies you can continue to file once a year for the current tax year (2021-22) and the following tax year (2022-23). The tax year 2023-24 will be substantially different. April, May, and June 2023 will be the first quarter in which you must file a digital return. Because of the oddity of the tax year-end date, which actually runs from April 6 to July 5, 2023.

There is a threshold, so you won’t have to register if your property rental income is less than £10,000 per year. After submitting a self-assessment tax return that shows your property income is £10,000 or more, you must comply with MTD for Landlords from the start of the tax year. The threshold is calculated based on your total rental income as a taxpayer, not per property. They also look at the rental income rather than the profits.

If you’re self-employed, things get a little more complicated. To see if you’ve exceeded the $10,000 threshold, add your sole trader sales to your property rental income.

What will you have to do?

  • You will have to register for MTD for ITSA before 6 April 2023 or get your accountant to do it for you. This applies even if you are already registered for self-assessment;
  • Critically you will also need to maintain digital records. The days where you could just tot up the money received in the tax year and fudge through some expenses are very definitely numbered;
  • You will have to send HMRC digital quarterly updates on your property income and expenses. The first quarterly update will have to be submitted by 5 August 2023;
  • There is also an end-of-period statement that needs to be submitted by 31 January following the end of the tax year. If you are also a sole trader you’ll have to submit a separate one for your self-employed income;
  • You will have to provide HMRC with a final declaration of all your income;
  • Lastly, you may still have to file a self-assessment tax return, depending on your other income!

The amount of red tape is effectively going to increase significantly.

Landlords in the United Kingdom with properties in other countries will be required to register as well.

MTD for Landlords will be required for UK resident landlords with foreign property rental income of £10,000 or more per year. Depending on the exchange rate you use, determining whether your rental income exceeds the threshold may be more difficult. If in doubt, use the annual exchange rates published by HMRC.

 

Wait, will this change once I have to pay taxes?

The deadlines for filing taxes will not change during this parliament. However, based on the March 2021 Tax Day Announcements, the payment of income tax will eventually be made closer to when the income is generated.

 

What should you do first?

  • There are a few things you may look into to make your life a little easier now rather than later:
  • Make sure you have a separate bank account for your rental income from your primary residence. This will make it easier for you to separate everything;
  • Consider using Xero online accounting to get a head start on keeping digital records.
  • There is a pilot program running at the moment which you may want to look at if you are really keen;
  • Keep an eye out for when you can sign up for MTD. Make sure you get that done and dusted before April 2023;
  • Talk to us to find out what are the plans to help you with Making Tax Digital.

If you’re interested in Xero online accounting, get in touch and ask about our Pricing for Xero conversions for landlords.