As a landlord, it’s really important that you remain ahead of new developments and changes to regulations in the industry. In this blog, we’re letting you know all you need to know about Making Tax Digital.
What is Making Tax Digital?
Making Tax Digital is a government initiative to make things more digitalised. It also makes it easier for people to sort their taxes, as it’s all in one place. It is an important part of the UK tax system.
Previously, manually adding income tax information could lead to more errors and reduced efficiency. By using digital means, tax payers can ensure that they are always seeing the most up to date information regarding their income tax affairs. Digital record keeping may also be more secure.
These new rules are coming into action for sole traders, some of which may be landlords receiving rental income.
What are the requirements for Making Tax Digital for income tax?
- People must keep digital records rather than physical ones for business income using MTD compatible software
- People must submit quarterly updates rather than one annual return (self assessment tax return)
- A final declaration must be made at the end of the tax year on all qualifying income
When do the new income tax rules come into effect?
From April 2026, landlords and others earning over £50,000 will have to start using the digital system. Those earning over £30,000 will need to use it from April 2027 and those earning over £20,000 will be introduced at a later date. It’s important to be aware of the income tax threshold to ensure you pay the correct tax liability.
When are quarterly updates due?
Having quarterly updates rather than annual updates means that you can get a more accurate picture of what’s expected of you throughout the year. MTD for income tax enables you to better prepare for your tax bills.
- Quarter 1 (6 April – 5 July): due by 7 August
- Quarter 2 (6 July – 5 October): due by 7 November
- Quarter 3 (6 October – 5 January): due by 7 February
- Quarter 4 (6 January – 5 April): due by 7 May
What software will need to be used?
You will need to use compatible software to adhere to the changes introduced by Making Tax Digital.
If you are already signed up to self assessment and you use compatible software already, then you may be able to sign up for Making Tax Digital now. This will enable you to get a better idea of the process early on, potentially making it easier when it becomes mandatory.
If you use an accountant to help with your tax returns, then you can speak to them about signing up. It’s important that you do so before the deadline and that you maintain business records.
How to complete calculations
We understand that these changes can feel a little daunting, especially if you’ve been using a different method for a long time. With just a few months before these changes come into effect, it’s really important to ensure that you understand them and know what needs to be done early.
You need to combine all of your annual income together, including property and sole trader income. If it exceeds £50,000, you need to sign up for the new scheme.
If you operate as a limited company, you can continue to file your tax information as you have been. VAT registered businesses are required to use Making Tax Digital rules already for all income, including property income.
How can landlords prepare for Making Tax Digital?
Landlords can prepare by taking the following steps.
- Calculate your income (including rental income)
- Select income tax compatible software
- Sign up early to meet income tax requirements
- Seek professional advice from an accountant regarding income tax self assessment
The changes introduced by Making Tax Digital aim to make the processes more efficient and reduce errors. We hope this blog has been helpful for landlords Making Tax Digital. If you need any support, please don’t hesitate to get in touch with our friendly team.
