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Making Tax Digital for Landlords: A Guide

Tags:
  • business,
  • landlord,
  • landlords,
  • making tax digital,
  • property investment,
  • Property management,
  • taxes

The way you do your taxes is changing.

Say goodbye to piles of paperwork, the tax system is having a digital makeover.

Although changes to routines can be worrying, these alterations are being implemented to make life easier for businesses and self-employed individuals. The proposed scheme to completely digitise the tax system by the end of 2020 aims to make taxes more accurate, efficient and easier to manage.

As a landlord, you’ll need to be aware of these changes and how they affect you, in order to prepare for digital taxes becoming mandatory in April 2019. Here’s everything you need to know about making tax digital for landlords.

 

What is MTD?

Making Tax Digital, or MTD, is a government scheme to overhaul the tax system to make it completely digital by the end of 2020. This means that from April 2019, VAT tax records and VAT returns will be managed online.

 

Will MTD Affect Me?

Any VAT-registered business with a taxable turnover above the VAT threshold will have to make these changes.

So, if you are a landlord with an annual rental income of over £10,000, then the MTD changes will apply to you from April 2019. With UK rental prices rising, this is likely to affect most landlords in the UK.

The Making Tax Digital timeline commences on the 1st April 2019, when the changes will become mandatory for all customers, excluding a small number of customers with complex requirements which are being deferred until October 2019. (These types of customers include trusts, non-profits and public sector groups).

The new process will require self-employed individuals and landlords to:

  • Use specific software or apps to keep track of their records
  • Update HMRC every quarter through a new digital tax account
  • Provide a full annual declaration at the end of each year

Further information can be found in the Finance Act, 2017.

 

The Income Tax Pilot Scheme

The government already has an income tax pilot scheme in place, which self-employed businesses or landlords can use voluntarily.

This scheme allows users to test out the MTD compatible software to store their digital records and send income tax updates to HMRC in place of filing a self assessment tax return.

Voluntary users can choose from a number of software options, sending a summary of income and expenses to HMRC every 3 months and sending a full report at the end of the year. You can even pay bills as you go and ask your accountant or bookkeeper to send the updates for you.

 

A Closer Look at the HMRC Making Tax Digital Scheme

Many landlords already choose to manage their taxes and accounts digitally through cloud based apps and software programmes.

Once the changes come in, these methods and software applications will need to follow new regulations. HMRC are not building their own software programme but will provide a list of approved software companies, some of which will be free of charge. You will still be able to use your current software system, as long as it complies with the new system.

Users will be required to communicate with HMRC via their Application Programming Interface (API) platform and submit VAT returns using information from these digital records.

This software should be able to calculate your return automatically- saving a whole lot of time and effort.

If you currently use spreadsheets to manage your taxes, it may be worth switching to a software solution now. Although spreadsheets are allowed if they comply with the new regulations, it might cost you more money to produce quarterly reports.

Your digital tax account will allow you to view and access all of your tax information in one handy place online. An agent services account grants accountants or other financial professionals you may employ access to relevant tax details.

Digital software programme

Is the MTD Scheme Compulsory for Landlords?

Unless your annual income from your rental property and trade combined is under £10,000 or you are unable to partake in digital programmes due to disability or age, this change is compulsory.

It is expected that late fines will be implemented if you fail to file reports on time once the scheme is established.

 

MTD for Multiple Properties

If you are a landlord of multiple properties, you will only be required to provide income and expenditure for your investments as a whole.

However, it’s best to keep a record of individual properties to manage and assess the income of various rental properties you may own.

 

The Benefits of MTD for VAT

According to the latest edition of the tax gap report, there was a gap of around £33 billion in the last tax year! This clearly shows that something isn’t right and suggests that lots of people are making errors when it comes to submitting their records.

By digitising the way tax records are stored and reported to HMRC, the scheme hopes to make tax reporting far more accurate and easier for stakeholders to complete. Sending this information directly to HMRC online will hopefully minimise any mistakes that currently occur during the exchange of information.

For busy landlords who manage multiple properties, it can be hard to stay on track of receipts and invoices. Implementing a digital system which allows you to add information on the go via mobile applications will help prevent taxable claims from escaping.

The digital system will also allow you to see approximately how much tax you owe ‘as you go’ rather than waiting to find out at the end of the tax year.

By seeing all of your reports for individual properties in one place, it will be easier to manage your portfolio and determine which properties generate the best return.

 

Get Ready for Making Tax Digital with No Letting Go

To sum up, from the beginning of April 2019, landlords will be required to use MTD compatible software to manage their tax records, updating HMRC every 3 months and providing an annual declaration.

Although the end result aims to make managing taxes more efficient, there’s likely to be some teething problems at the start.

To prepare yourself for this shift, it’s best to start early. Make sure your current software is compatible, and if not, plan which system to use. Staying organised across the whole of your property management processes is key to ensuring a smooth transition.

No Letting Go provide professional, accurate property reports to help landlords and property professionals keep track of their investments.

To see the full range of reports we provide, browse the No Letting Go Services section on our website.

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