Landlords: what are the implications of Making Tax Digital?

Making Tax Digital for income tax will be introduced from April 2024.

HMRC recently announced they are moving on to introduce MTD for Income Tax Self-Assessment (ITSA) from April 2024. This was originally proposed to commence from April 2023. However, having listened to stakeholder feedback from businesses and the accounting profession, the government have announced that they will introduce MTD-ITSA a year later than planned. This will give the self-employed and buy to let landlords an extra year to prepare for the digitalisation of Income Tax and also allow HMRC more time for customer testing of the pilot system.

Who will be affected?

All businesses, including sole trader self-employed businesses, partnerships and letting businesses with turnover in excess of £10,000, will come within the MTD regime from April 2024. The £10,000 turnover test includes the total turnover where individuals have more than one source of business income.

Taxpayers’ obligations

HMRC have not advertised these changes very well to taxpayers and are relying on accountants to help their clients get it right. Some accountants are not prepared for the changes themselves as they are not sufficiently advanced with their digital technology.

Unlike the current self-assessment regime, no platform will be provided by HMRC for taxpayers to submit their records. HMRC are relying on third parties to provide the technology to taxpayers, so there will be a cost for those needing to report their tax affairs under MTD.

Individuals will be required to make a quarterly filing. This can be done electronically on a smart phone or computer. For this reason, it is important to maintain up to date electronic records of income and expenses for your business so that you have an accurate record of your quarterly business figures. Some businesses may have regular income and outgoings in which case the reporting will be more straight forward because each quarter may be very similar.

The businesses most affected by these changes will be those with manual records, those with out-of-date accounting software or multiple accounting systems, and those using bespoke or niche software.

How can you prepare?

We encourage you to invest in software now to assist you to be MTD ready. We also recommend you take steps now so that when MTD is launched, you are familiar with the software package you are using, and it will make the transition easier for you.

Our cloud team have already helped many of our clients with their accounting software to become ‘MTD ready’. We have access to a range of MTD ready software providers that we can provide along with our accounting services. Our team can recommend and provide the most suitable software, and offer training on how to use it.

We hope tax returns will be simpler, although more frequent reporting is required. Keeping your records up to date will in time become less of a burden and you will be in control of your business finances. HMRC have said they will not be seeking quarterly tax payments, but we suspect this may change in the future, so that tax will become ‘pay as you go’.

Learn more in the first issue of our newsletter South East Property.

Read South East Property Issue 1

Contact our team on 01903 234094 if you would like further advice or support on preparing for Making Tax Digital.