The new MTD ITSA guidelines have been complicated for many to grasp fully, even for accountants. To combat this, HMRC has been offering clarifications at intervals and recently hosted a boot camp for landlords and sole traders to answer their questions.
For busy landlords, especially those just getting used to the MTD system, we have compiled a list of salient points about the MTD for ITSA guidelines and how they apply in different circumstances:
The entry threshold for MTD ITSA reporting is stated to be at least £10,000 of qualifying income each year. Here, qualifying income refers to the total income from property income and self-employment that one earns in a tax year.
Other types of income, like employment income or interest on dividends, do not fall under MTD ITSA and need to be reported using either HMRC online services account or an MTD-compatible software solution.
If the accounting period of the individual’s income is either less than or more than 12 months, it will be annualised. A question asked during the boot camp related to whether a client, who had a self-employed income of over £10,000 and also owned joint rental property with her employed husband, would have to report the rental income on MTD.
The HMRC stated that the client would have to declare her share of the rental income and expenses, given that her qualifying income was higher than £10000. However, the husband would only need to declare his share if his gross rental income exceeded £10000 (since he is employed).
Jointly held property is one of the areas on which people have the most questions, particularly with regard to how income from multiple property portfolios would need to be aggregated before submitting to HMRC.
Many families hold property jointly with varying percentages of shares, and someone with multiple portfolios could deal with numerous accountants, each handling one property.
The HMRC is not very clear on this, except for a statement saying that, at present, only one agent could access each customer’s MTD account and that they were working to understand and accommodate multiple agent access.
When a husband and wife are landlords, the HMRC is not fully clear on whether they need to keep one joint digital record or separate ones. However, they stated that such landlords should find it easy in practice to maintain joint records if they are using MTD-compatible software.
Landlords with gross income up to £150,000 annually can choose which accounting system they want to use, although cash is the default. For income higher than that, they will have to use the GAAP system of accruals accounting.
While professional landlord software does exist, most of the landlords operating in the UK are non-professional, i.e. they work as individuals, own fewer than five properties and do not treat the rental income as their primary source of income. Conventional landlord software tends not to work for such landlords for several reasons:
- While the landlord’s accountant can be added to the tool as a user, the tool itself focuses on displaying the portfolio rather than detailed financial reports, which is what the accountant really needs.
- Most of these tools have limited mobile functionality, making it harder to pull up information on the go.
- Most tools are not designed to handle the bookkeeping needs of non-professional landlords and often lack core functionality like the ability to categorise transaction types.
- Such tools cannot include other sources of income, like sole trading revenue, which means landlords have to use separate accounting software to handle those income sources.
Given that the MTD ITSA does not get rolled out before April 2024, it still makes sense for landlord accountants to find suitable software for their non-professional accounting clients as soon as possible. Ideally, such a tool should embody the following features in MTD for landlords:
- Ability to manage more than one property in the same account, including both unincorporated and limited company ownership
- Easy-to-understand workflows that present non-professional landlords with all their portfolio details in one place
- Comprehensive income visibility and control over multiple streams of income, including tax liability percentage calculation in case of joint ownership of property
- In-built tax calculations that reflect the latest laws
- Easy transaction identification and designation, even from multiple bank accounts.
Making Tax Digital for landlords: Preparation is key
In conclusion, while managing the tax liabilities of a non-professional landlord under MTD ITSA can be challenging, it does not have to be. Choosing the right software eliminates half the trouble, leaving the accountant freer to offer advisory services and find ways to reduce the client’s tax burden.
As April 2024 approaches, it is more vital than ever that accountants and clients work together to create tailored, mutually beneficial workflows. And given that 94% of England’s landlords operate as non-professionals, it can only be a sensible decision to seek an accountant to help you to work through the details.
If you are a landlord wading through the MTD ITSA waters, you just need a qualified accountant to rely on. The good news is – our landlord accountants ensure you do not overpay taxes, meet all deadlines, and can take advantage of the many tax-saving strategies offered by the government.
We at Golding want you to thrive as a landlord and stay in the right books of HMRC. If you want to learn more about our landlord accountants or chat with us about other accounting or taxation matters quickly, contact us, and we will get back to you as soon as possible.
