Are you ready for the switch to digital tax submissions?

The Making Tax Digital initiative (MTD) is a HMRC scheme that aims to modernise income tax accounting and reporting, making the process fully digital. The idea is to improve HMRC’s efficiency and reduce costs to the taxpayer by processing business, property and individual tax affairs on-line.

Under Making Tax Digital Income Tax Self Assessment (MTD-ITSA) landlord taxpayers will be obliged to submit quarterly up-dates instead of just one annual tax return, traditionally due by 31st January following the end of the previous tax year ending 5 April.

In addition to the quarterly returns there’s also required an “end-of-period statement” (EPOS) submitted to HMRC as before by 31 January following the end of the financial year. This will confirm that the data entered in the quarters was accurate, adjusted if necessary.

Other issues such as expenses that landlords can claim and the restriction of mortgage interest, as well as any other taxable income will be taken into account before submitting a “finalisation statement”, a declaration to confirm and take account of any final “updates” needed to calculate an accurate final tax bill.

Extended timescale

In recognition of the challenges faced by many UK businesses, landlords and individuals as the country emerges from the pandemic, the introduction of MTD ITSA has been extended by one year, from it’s planned start in April 2023, to April 2024.

The next phase follows the introduction in April 2019 of MTD for those VAT-registered businesses with taxable turnover above the VAT threshold and also the introduction of MTD for VAT-registered businesses with turnover below the VAT threshold from April 2022.

HMRC says that there is a growing body of evidence from research and insights from taxpayers already operating MTD VAT demonstrating that MTD is securing a range of benefits for those that use it in practice. The users are reporting that the discipline of preparing and submitting returns makes life easier in the long-run, and that MTD has increased their confidence in managing tax their affairs and the use of technology.

Get ready now!

From 6th April 2024 Making Tax Digital will be introduced for all landlords, the self-employed and partnerships whose gross income from those sources combined exceeds £10,000 a year. There are two main requirements for MTD, (1) all transaction records must be kept digitally and (2) an HMRC approved software product must be used to do this so that the quarterly returns can be submitted to HMRC.

There will undoubtedly be greater demands place on the taxpayer under the new regime, but these accounting demands may not be too onerous if regular recordings are made. The spin-offs from this will be that income and expenditures are recorded as they happen obviating the annual scramble to bring to mind events that occurred 12 months ago, and once digitised the software – depending on the product used, whether a general property management suite with tax capabilities or a purposed MTD package -will allow detailed analysis of the profitability of your operations.

The extension gives plenty of time to prepare but by getting your affairs in order now, the transition from your paper based or already digital accounting system will be so much easier. You need to search out the best accounting software to meet your own needs from the extensive list of HMRC approved products, some of which are free while others are incorporated into mainline accounting and property management packages.

Many accounting packages are now “cloud based”. Sage, Quickbooks and Xero as well as some others work in this way. It means that all your accounting data once entered can be accessed from anywhere on most devices. The then means that your accountant will instantly be in a position to work on your accounts. Here is a complete list of HMRC approved MTD ITSA software

Who will MTD apply to?

The new MTD Self Assessment Income Tax requirements apply to all landlords with a combined property and/or business income of £10,000 or more per year. Gone will be the current process of completing and annual Self Assessment tax return from 6 April 2024. All those landlords and business owners with a combined business and/or property income between £1,000 and £10,000 per year will for now continue file annual tax returns through current Self Assessment process.

The new MTD rules will require landlords to:

– keep accounting records in digital form ready for submission to HMRC using approved software

– record all property and/or business income and expenses, capital and repairs / maintenance costs.

– submit quarterly returns for your property and/or business income and expenses to HMRC

– submit an “end of period statement” (EOPS) and a “final declaration” to HMRC

Here are some key dates to bear in mind:

The are deadlines for submitting quarterly returns after the start date of 6th April each year from April 2024:

– 5th August

– 5th November

– 5th February

– 5th May

After the final quarterly submission and at the end of the tax year the landlord will be required to submit:

– the end of period statement (EOPS) for each source of property or business income

– a final declaration which in effect is the replacement for the traditional annual Self Assessment tax return.

When submitting these final statements (due 31 January each year) for each source of income it gives you the opportunity to make adjustments noting details of any relevant other income sources and tax reliefs you may have received during the tax year.

As landlords you might think you’ve enough to worry about right now with a cost of living crisis, mortgage rate hikes, new regulations due out soon and looming EPC rating uplifts, but don’t leave planning for MTD to the last minute. It’s a great idea to start to digitalise your accounts now using one of the approved packages to that you have a year to get familiar with it, for when the time comes to submit your quarterly returns.

Useful sources:

Extension of Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords

Updated 2 February 2022

Sign up as an individual for Making Tax Digital for Income Tax

Income Tax (Making Tax Digital) end-to-end service guide