Guide to Making Tax Digital (MTD) for Landlords 2024

As businesses and individuals develop and use more modern processes, so too must the UK's tax system become more efficient and streamlined.


The Making Tax Digital programme goes live in April 2024 and is designed to bring tax administration up to date.


The Making Tax Digital (MTD) for income tax programme is part of the Government’s 10-year strategy to digitise the UK tax administration system, to improve efficiency and reduce errors common in traditional methods of tax preparation.


Making Tax Digital for income tax will benefit landlords and property investors in many ways. It will enable them to keep their business records more accurately and submit their quarterly updates and self assessment tax return with ease.


Of course, any transition is not without a degree of complexity, and there are many questions surrounding MTD.


At Walji & Co we are well-versed in the MTD, having helped our clients to transition through MTD for VAT returns in the past two years. Our accountants for property investors are here to help, if you have questions about exemptions, registration, software and penalties under the new system.


Read on for our helpful guide and book a call to discuss your specific requirements further.


What is Making Tax Digital for landlords?


Under the new scheme, eligible landlords will be required by law to keep digital income and expenditure records (invoices/receipts) and to use MTD compliant software to submit quarterly returns to HMRC, along with an end of year report.


Do landlords have to register for MTD?


Some businesses are already part of a live pilot for MTD for income tax self assessment. When the system becomes live from the tax year beginning 6th April 2024, all landlords will be legally required to operate through MTD if their gross property income exceeds £10,000 for the tax year.


Why was Making Tax Digital for landlords delayed till 2024?


The Government recognises that businesses are struggling to get back on their feet after recovering from the recent pandemic. Therefore, Making Tax Digital for landlords has been delayed by a year to compensate for this.


How to prepare for MTD as a landlord


The first step to preparing for MTD is deciding which method to use to keep electronic records of your rental income and expenditure; either by transitioning to MTD compatible software or using bridging software to transfer data from an organised spreadsheet.


MTD compatible software will present your figures in an acceptable format in which to submit to HMRC. It will also calculate your tax liability, allowing you to budget more efficiently in preparation for your final declaration and paying your tax bill.


What software package is required for MTD for income tax?


For the transition to MTD, landlords will be legally required to keep digital records of income and expenditure.


For many, this will require an investment in new software, although for some small businesses, HMRC have ensured that free software products are available.


There are many different brands of compatible software, which your accountant can help you to navigate. The long list includes Xero, the world's leading cloud accounting system.


Xero allows you to record your income and expenditure digitally, on any device, in any location, so is a particularly good choice for landlords.


The added benefit of using a software like Xero is that it allows you to submit quarterly return submissions, making your tax affairs far more convenient.


What if I've invested in multiple properties?


It doesn't matter how many properties you have invested in, the only figure which HMRC are concerned with is how much your total gross income is across all properties.


However, certain suitable software packages are more equipped to deal with multiple properties than others and could provide you with additional benefits in terms of tracking and assigning income and expenses to certain properties.


FAQs


Who is exempt from Making Tax Digital?


Businesses that are already exempt from engaging with HMRC through other mandatory electronic channels will also be exempt from having to meet MTD requirements.


If a business cannot go digital, then the Government will not force them to do so, however, you must contact HMRC to apply for an exemption.


What happens if I don't register for MTD?


Failure to comply with MTD without an approved exemption will earn you points against the MTD penalty system. Taxpayers will accrue points for failing to comply which will eventually lead to fines at certain levels.


The process to register should be straightforward but you won't be able to use your existing spreadsheet anymore! Unless of course you get some bridging software that allows you to get your business or property income from your spreadsheet to HMRC using an application programming interface (API).


Unfortunately keeping electronic records is not optional anymore!


Does MTD apply to flat rate scheme?


The flat rate scheme is a scheme for VAT registered businesses. Most landlords will not be VAT registered as rental income from residential properties is exempt for tax purposes.


As such, the flat rate scheme is not applicable to you if you have residential portfolio.


What if I own overseas property?


If you are resident in the UK and own property overseas, MTD for income tax self assessment applies in the same way, with the same threshold of £10,000 per tax year in rental income.


Why choose Walji & Co as your property investor accountant


Here at Walji & Co, not only do we have many years of experience handling multiple property investment businesses tax affairs, we are also very familiar with Making Tax Digital having spent over two years operating under HMRC's MTD for VAT transition.


We deal with landlords across the UK who have property portfolios ranging from 5 to 100 properties. Our founders are also property investors and have a sizeable portfolio between them.


Not only that but our managing Partner Reza Hooda has written a 132 page book called 'All Your Property Tax Questions: answered', available on Amazon, and answers the most common questions asked by property investors and developers. So not only do we know the theory, we are also in the trenches too!


We deal with advanced tax planning for landlords such as incorporating the portfolio to a limited company. The key to this is demonstrating that you run a property business.


We have handled multiple incorporations and can help you to structure this process tax efficiently whilst reducing the risk of enquiry from HMRC.


Conclusion


Income tax rules are complex. The tax system in the UK is the most complex tax system in the world, second only to India. If you've only got a couple of properties and are more of an armchair investor, then you could consider doing your own self assessment tax return.


However, if your rental income exceeds £10,000 then Making Tax Digital (MTD for income tax), will mean that you'll need to keep digital records and submit quarterly updates to HMRC via digital tools, i.e software.


This will become a legal requirement from the accounting period starting 6th April 2024.


It's therefore worth your while getting a property specialist accountant to guide you through the process, as the consequences and penalties for non-compliance are significant.


Walji & Co offer a paid strategic consultation for you to get bespoke advice on your current position as a landlord, to see that you are structured in the most tax efficient way and doing what you can to make sure you pay the least amount of tax possible.


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Worldwide Disclosure Facility: Your Guide to Offshore Tax Compliance

By Reza Hooda • December 3, 2024
The Worldwide Disclosure Facility (WDF) is a program set up by HMRC to help people and businesses follow the rules for taxes on money from outside the UK. If you have income or money from other countries that you haven't told HMRC about before, this program gives you a chance to fix your tax situation and make sure you're following the law. Key Points: Worldwide Disclosure Facility Opportunity for UK taxpayers to tell HMRC about offshore issues they didn't report before Covers tax years up to and including 2022-2023 It gives you 90 days to tell HMRC everything after you let them know you want to use the facility Works for people living in the UK and those living elsewhere who need to pay UK taxes It could mean that you pay less in fines compared to if HMRC found out on their own What is the Worldwide Disclosure Facility? The Worldwide Disclosure Facility is a way for people and companies to tell HMRC about money or things they own in other countries that they should have paid UK tax on but didn't. This includes money from houses in other countries, money from investments abroad, and gifts or inheritances from people in other countries that you didn't tell HMRC about before. Who can use the Worldwide Disclosure Facility? The WDF is for anyone who wants to disclose a UK tax liability wholly or partly related to an offshore issue. This includes unpaid or omitted tax related to the following: Income arising from a source in a territory outside the UK Assets situated or held in a territory outside the UK Activities carried on wholly or mainly in a territory outside the UK Funds connected to unpaid or omitted UK tax that you have transferred to a territory outside the UK A common misconception that UK resident and non-domiciled taxpayers are unaware of is, that a UK tax liability arises on: Rental income from property located outside the UK If you’re not resident in the UK, you can still make a disclosure if you meet the eligibility criteria. The WDF may not cover 22/23 as you are still within time limits to submit an amended tax return (deadline is 31 January 2025). Why Use the Worldwide Disclosure Facility? Using the WDF can help you avoid bigger fines and possible criminal investigation that could happen if HMRC found out about your overseas money on their own. It's a way to be honest about your taxes from other countries and get back on track with what HMRC requires. It's ok to have investments in other countries, but not telling HMRC about the money you make from them is against the law. The WDF gives you a chance to fix this mistake and show that you want to follow the tax rules. How to Respond to HMRC Nudge Letter HMRC identifies those who need to make a tax disclosure and sends them a nudge letter based on data they have obtained. If you’ve received a nudge letter, HMRC has identified a potential issue in your UK tax affairs. Rather than ignoring this, it's best to seek advice from a tax professional to ensure compliance with your offshore tax affairs. We can assist you in finding irregularities in your offshore affairs before making a disclosure through the WDF. It’s important to seek professional advice and take careful consideration before responding to a nudge letter, as making a false declaration can lead to serious consequences. How Does the Disclosure Process Work? The WDF process has several important steps: Notify HMRC that you want to make a disclosure. This means letting them know you want to use the facility. To register, use the Digital Disclosure Service. You’ll need some key information such as your address, DOB, and National Insurance to notify and disclose. On receiving your unique Disclosure Reference Number (DRN), you must make your disclosure within 90 days after getting the notification acknowledgement. If your disclosure is prompted by a letter from HMRC, you’ll need to state this in the disclosure. Depending on your reasons for not disclosing your tax liability, the penalties will vary. If you’re unsure on the self-assessing behaviour option that applies, seek professional advice. Figure out how much tax, interest, and penalties you owe. You’ll need to disclose any unreported income or gains, as well as the associated tax, interest and penalties. You might need help from a professional for this part. Tell HMRC everything within 90 days of receiving the unique DRN from them. You need to include all the important information about your money and things you own in other countries. Offer to pay the full amount you owe or agree to the HMRC terms to pay it over time, using your Payment Reference Number (PRN). It's really important to be thorough, honest, and clear when you're telling HMRC everything. They can check the information you give them, and if you don't tell the truth or leave things out, you could get in big trouble. The 90-day window to tell them everything is strict, so start gathering all the information you need as soon as you decide to use the WDF. What Penalties Might I Face? If you’re not following offshore tax rules, HMRC takes this very seriously. However, if your disclosure is unprompted, you could reduce the penalties you are liable for. Your penalty amount is based on whether it was a mistake, if it was deliberate or not, and how long you didn’t follow the rules. The Benefits of Disclosing through the WDF Voluntarily sorting out your tax affairs can provide many benefits. HMRC prefers when you come forward rather than having to be tracked down by them. This can prove that you are responsible in your tax affairs. Also, you could potentially reduce the penalties by coming forward, and reduce the number of years assessed. What Should I Look Out For? When using the WDF, there are some important things to remember: Make sure to tell HMRC about everything - if you leave things out, you could get bigger fines and HMRC might investigate you more. Remember to include the interest you owe on unpaid tax when you're figuring out how much to pay. Think about getting help from a professional, especially if your tax situation is complicated or involves many countries. Be ready to show proof of everything to HMRC. This might include bank statements, investment records, and documents about properties you own. Remember that HMRC can look into your finances from up to 20 years ago for serious cases. Know that if you didn't follow the rules on purpose, you could be in really big trouble. Being honest when you use the WDF can help avoid this. If you're not sure about anything when using the WDF, it's a good idea to ask a tax expert for help . They can guide you through the process and make sure you're doing everything right. Conclusion The Worldwide Disclosure Facility is an important tool for people and businesses who need to fix their offshore tax situation. While it might seem scary to tell HMRC about money or gains you didn't report before, using the WDF is usually much better than risking HMRC finding out on their own. It's worth knowing that many countries now share financial information automatically, so it's much more likely that HMRC will find out about offshore money that has yet to be reported. It's important to know that telling HMRC everything can be complicated, especially if you have money in different countries. In these cases, it's a good idea to get help from a tax professional to make sure you're telling HMRC everything they need to know correctly. At Walji, we can offer specialist advice on your tax affairs and help you with your disclosure. To apply for a callback, please fill in our contact form and we’ll be sure to get back to you.

The Let Property Campaign: A Landlord's Guide to Tax Compliance

By Reza Hooda • November 19, 2024
As a landlord, it's important to keep up with your taxes. The Let Property Campaign (LPC) helps those who might have forgotten to report all their rental income. Let's look at what this means for you and how to make sure you're doing everything right. Key Points The Let Property Campaign is a programme for landlords to report missed rental income It often has lower penalties than if HMRC finds out on their own It's for different types of rentals, including UK and overseas properties You have 90 days to figure out and pay taxes after telling HMRC It's better to tell HMRC yourself to avoid bigger problems later What is the Let Property Campaign? The Let Property Campaign is a service by HM Revenue and Customs (HMRC) to encourage residential property landlords to straighten out their taxes. It helps landlords fix their taxes if they haven’t reported all their rental income beforehand. This programme gives landlords a way to come forward, report any unpaid taxes, and follow the tax rules properly. If you haven't disclosed your rental income, you may have received a nudge letter from HMRC. This letter is to notify you to come forward through the Let Property Campaign to disclose your taxes, and ensure you don’t end up with bigger penalties or face criminal investigation. Who is eligible for the Let Property Campaign? The LPC is for many types of landlords, if you are: Renting out one or more properties Renting out holiday homes Renting out rooms in their own home Those who have inherited a property and are renting it out UK residents renting out properties in other countries Non-UK residents renting out UK properties If you're one of these and haven't reported all your rental income, the LPC can help you fix your taxes. It's especially helpful if you didn't know you had to report everything or if you fell behind by accident. The LPC is not for landlords who: Have non-residential properties like shops, garages or lockups, etc. Want to disclose income on behalf of a trust or company How to make the Let Property Campaign Disclosure 1. Tell HMRC First, you need to tell HMRC you want to report your income. You can do this online through the Digital Disclosure Service (DDS) . After you notify HMRC, you have 90 days to make your disclosure. This first step is important because it shows you want to cooperate. 2. Collect Information Use this time to gather all your financial records about your rental income from your property. This includes: Details about you and when you bought the property Details about the property The total rental income for each year (not declared to HMRC) You don’t need to include income which you’ve told HMRC about (previously declared in a tax return) Work out allowable expenses incurred on income (day-to-day money spent) Deduct allowable expenses from income to determine taxable profit Being thorough here will help make sure your report is correct and complete, which can prevent problems later. Read our blog post to learn more about expenses landlords can claim . 3. Calculate Taxes Once you’ve worked out the additional rental income you need to figure out how much tax you owe. The rates of income tax that you’ll pay depend on how much you earn above the Personal Allowance. 4. Submit and Pay Once you've calculated the amount of tax you owe, you need to make a formal offer for the full amount to HMRC. Essentially you need to complete the disclosure and provide details of the rental income not declared to HMRC. Once your offer is met with an acceptance letter, it will create a legally binding contract between you and HMRC. You'll need to pay the taxes you owe, plus any interest and penalties before the 90-day deadline on your notification acknowledgement letter. If you can't pay it all at once, you need to speak to HMRC before submitting your disclosure or payment. How many years are included for the disclosure in the LPC? It depends. HMRC will ask the reason why you didn’t declare, whether it was deliberate or not. Depending on how many years you have not reported income from your property, this can range from four to 20 years. Understanding Let Property Campaign Penalties While the LPC has better terms than if HMRC investigates you, there are still penalties. The exact penalty will depend on things like: How long you didn't report the income Why you didn't report it How helpful you are during the process Whether you didn't report on purpose or by mistake Penalties can be from 0% for honest mistakes to up to 100% of the tax owed for hiding income on purpose. But by coming forward through the LPC, you'll likely face lower penalties. How HMRC finds unreported Income HMRC has smart ways to find unreported rental income. Their system, called "Connect", gets information from many places, including land registry records, letting agencies, local councils, bank and credit card transactions etc. This makes it more likely that unreported income will be found, showing why it's important to report yourself. HMRC keeps getting better at this, making it harder for landlords who don't report to stay hidden. Staying on top of taxes in the future After joining the Let Property Campaign, it's important to keep following tax rules. This includes: Keeping good records of all rental income and expenses Sending in Self Assessment tax returns on time Staying informed about changes in tax laws for landlords Regularly checking your tax situation to make sure you're still following the rules Thinking about using property management software to help keep records Download a free book (from our Partner Reza Hooda) to answer all your property tax questions. Conclusion The Let Property Campaign gives landlords a chance to fix their taxes and avoid big problems. By choosing to report unreported rental income yourself, you can get lower penalties and peace of mind. Since tax laws can be tricky, especially for property owners, it's often a good idea to get professional advice. This helps make sure you're following current rules and are ready for future changes in property taxes. At Walji, we can offer specialist advice on your property situation. To apply for a callback, please fill in our contact form and we’ll be sure to get back to you.