10 min read
Making Tax Digital for Income Tax (MTD for IT) is a significant shift in how landlords in the UK will manage their tax obligations. It’s part of the government’s broader initiative to digitise the tax system, aiming to simplify tax management and reduce errors. While the changes might seem daunting, understanding the requirements and preparing early can make the transition smooth. This blog post offers an in-depth summary of MTD for IT and what it means for landlords.
What is Making Tax Digital for IT (MTD for IT)?
Making Tax Digital for Income Tax (MTD for IT) is a key component of the UK government’s plan to modernise the tax system. MTD for IT mandates keeping digital records and submit updates to HMRC. This replaces the traditional annual tax return with a more frequent, digital approach. The rollout is phased, starting with landlords and self-employed individuals earning above specific thresholds:
- April 2026: Landlords and self-employed with annual gross income above £50,000.
- April 2027: Landlords and self-employed with annual gross income above £30,000.
- Future Date (TBC): The threshold will be further reduced to £20,000.
This shift to digital record-keeping and quarterly submissions marks a significant change for many landlords, making early preparation crucial.
What does MTD mean for landlords?
MTD for IT fundamentally alters how landlords manage and report their rental income. Instead of submitting a single annual tax return, landlords will be required to:
- Maintain digital records of all income and expenses related to their rental properties.
- Submit quarterly updates to HMRC using MTD-compatible software.
- Submit a final declaration by January 31st following the tax year.
These changes necessitate a move away from traditional paper-based record-keeping and towards digital solutions.
How do you calculate income for MTD for Landlords?
For MTD purposes, your income is calculated by combining all income from property and any self-employment income. For example, if you earn £40,000 from rental properties and £15,000 from a side hustle, your total income is £55,000, and you will need to comply with MTD for IT from April 2026. It’s crucial to note that this applies even if your rental income alone is below the threshold, if your total income exceeds it. Landlords operating as limited companies should continue to file their company accounts and corporation tax returns as they currently do. MTD for IT applies to individuals, not limited companies.
What information must landlords send to HMRC?
MTD for IT requires landlords to submit two types of information:
- Quarterly updates: These updates, submitted through MTD-compatible software, will detail your income and expenses for each quarter. Accurate and timely submissions are essential.
- Final declaration: This submission, due by January 31st following the tax year, allows you to finalise your tax position, claim any reliefs, and declare any additional income (e.g., savings, investments).
HMRC-recognised software can assist in fulfilling these obligations.
How do landlords sign up for Making Tax Digital?
If you’re already registered for Self Assessment, have up-to-date tax returns and payments, and have MTD-compatible software, you can now enrol in MTD for IT. The sign-up process may vary depending on your software provider, so it’s best to contact them for guidance.
Is it possible for an accountant to register a landlord for Making Tax Digital (MTD) for income tax?
Yes, accountants and bookkeepers can assist landlords with signing up for MTD for IT. If you work with an accountant, discuss MTD for IT with them.
Who does MTD for landlords apply to?
MTD for IT applies to landlords earning above the specified thresholds from various types of rental properties, including:
- Buy-to-let properties
- Furnished Holiday Lettings (FHLs)
- Non-UK properties
- Commercial properties
Joint landlords are also subject to MTD for IT if their share of the income exceeds the threshold.
In which circumstances does Making Tax Digital for Income Tax not apply to landlords?
If you sell real estate, is the profit considered for Making Tax Digital for income tax purposes?
How to prepare for MTD as a landlord?
- Choose MTD-compatible software: This is the most crucial step. Research and select software that meets your needs and is recognised by HMRC. Think about aspects such as user-friendliness, functionality, and pricing.
- Familiarise yourself with HMRC resources: HMRC provides a range of resources and guidance on MTD for IT. Take the time to understand the rules and requirements.
- Maintain accurate records: MTD for IT necessitates more frequent record-keeping. Establish a routine for updating your records regularly to avoid a last-minute rush.
Consider professional help: Consider consulting with an experienced accountant specialising in landlord taxation. They are capable of offering specialised advice and assistance in managing the intricacies of MTD for IT.
Do I have to sign up for Making Tax Digital (MTD) for Income Tax if I’ve already signed up for MTD for VAT?
Is it advisable for landlords to voluntarily enrol in MTD for income tax?
Early adoption can be beneficial. It allows you to familiarise yourself with the new requirements and software before the deadlines. However, ensure you have HMRC-recognised software in place before signing up voluntarily.
Conclusion
MTD for IT represents a significant change for landlords, but with proper preparation, the transition can be manageable. By understanding the requirements, choosing the right software, and maintaining accurate digital records, landlords can ensure compliance and avoid potential penalties. Don’t procrastinate – begin your preparations now to ensure a smooth transition to MTD for IT. If you’re unsure about any aspect of MTD for IT, consult with an accountant specialising in landlord taxation.
