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.