MTD (Making Tax Digital) for income tax for landlords explained

With the deadline looming on the horizon, we have done a brief breakdown of the complexities of MTD for Income Tax and how landlords could fall within the scope. Note: this article will focus solely on landlords, or landlords who also have sole trader income. 

As of April 2023, individuals who currently use self-assessment will be required to switch to using MTD for Income Tax for their income tax accounting and reporting. This includes landlords, but only those whose income from their property or properties exceeds £10,000 per year.

What do landlords need to do for income tax?

  • The rules of MTD for Income Tax are as follows:
  • Software compatible with MTD for Income Taxmust be used for your accounting relating to income tax. These records must be held digitally (e.g. invoice and expenses data) and kept for the required period after the tax year ends (this is currently 5 years).
  • You or your accountant must register you for MTD for Income Taxbefore 6th April 2023. If you’re already registered for self-assessment, or have already registered for MTD for VAT, you will not be transferred across automatically when MTD for Income Tax begins.
  • You’ll no longer need to send a Self-Assessment return for income tax (although one might still be needed in some cases in order to report other kinds of income outside the scope of MTD for Income Tax. This will be submitted in addition to fulfilling your requirements that arise from MTD for Income Tax).
  • You must provide HMRC with quarterly updates using software. There’s no legal requirement for the updates to be accurate but doing so will help you see your predicted tax and National Insurance liability.
  • By January 31st, following the end of the tax year, you must use software to provide HMRC with an end of period statement (EOPS). This will detail your property income and allowable expenses. If you own a sole trader business (or businesses) then you’ll also need to submit an EOPS for each. These should follow the end of the accounting period for that business but be submitted by 31 January at the latest.
  • By January 31st, following the end of the tax year, you must use software to provide HMRC with a final declaration of all your income. If you have any income from a sole trader business then this will need to be included too.
  • By January 31st, you’ll need to pay the balance of any tax and National Insurance contributions due. Note that the payment on account system will continue, so you may need to make a further payment on 31 July of the same year.

How do landlords work out their income for MTD for Income Tax?

  • If you’re not a sole trader, calculate the rental income you receive from the one or multiple properties you own.
  • If the total rental income you receive is more than £10,000 per annum, you need to register for and then use MTD for Income Tax for your accounting relating to your property rentals.
  • If you’re a sole trader who uses Self-Assessment for other businesses not related to being a landlord, it’s more complex.
  • To work out your income for the purposes of MTD for Income Tax, the rental income should be combined with income from any sole trader businesses you own.
  • If the total comes to more than £10,000, you need to register for and use MTD for Income Tax for accounting relating to income from your property rental, as well as from your business(es).

SOURCE: SAGE / www.accountancyage.com

If you are a landlord and have questions regarding MTD for Income Tax, give us a call. We know this could all seem quite daunting!

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Kind Regards,
The Team at London Accountants

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