HMRC Making Tax Digital initiative for landlords
The government has given landlords another year to prepare for the ‘Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords’ initiative.
The initiative applies to investors who submit self-assessment forms with a business or personal income over £10,000 a year. It was due to begin in April 2023, but HMRC announced it would be introducing the scheme in the tax year starting April 2024.
How will Making Tax Digital work?
Under the Making Tax Digital initiative, landlords will be required to send HMRC quarterly updates of their income and expenses. At the end of every quarter, landlords will have up to one month to send in their Making Tax Digital information.
Then, rather than sending a self-assessment tax form at the end of the year, landlords will instead be asked to sign a declaration that their quarterly returns are accurate.
As usual, tax will need to be paid before January 31 of the following year.
What’s the objective of Making Tax Digital?
The initiative is part of the government’s 10-year strategy to make the tax system more resilient and to increase business productivity and support taxpayers.
Their aim is for landlords to use digital tools to help them cut admin and reduce time spent putting errors right at a later stage. At the foundation of the scheme is the use of real-time record keeping with accounting software that will help landlords get their taxes right first time.
HMRC hopes landlords will experience significant productivity benefits by introducing these processes.
When will the scheme now come into effect?
From 6 April 2024, landlords will be required to:
- Adhere to the Making Tax Digital scheme in relation to their trading and property income chargeable to Income Tax and Class 4 NICs if their gross income from these income sources for a tax year exceeds £10,000.
- To keep their records digitally (for Income Tax Self-Assessment purposes only) and provide digital quarterly updates and their self-assessment return information to HMRC through Making Tax Digital compatible software.
Why has the initiative been delayed?
HMRC says it made the decision to extend introduction of the initiative by 12 months as a result of the reaction it received from property portfolio landlords with multiple properties as well as feedback from other business sectors.
Businesses across the UK have faced challenges following the pandemic, and the government recognises more time is needed to allow landlords to prepare for these changes.
Angus Stewart, chief executive of online buy to let mortgage broker Property Master, commented: “For a typical landlord, Making Tax Digital will move them from making one tax submission a year to having to file five – one every quarter and one at the end. The new deadline of April 2024 instead of 2023 will be some respite. Our advice though to landlords is to use this time wisely. Begin by keeping good income and expenditure records every quarter from now if you don’t already do this and think about sourcing software that can help. Our fear is that Making Tax Digital will have passed many landlords by as an issue they need to prepare for not just in terms of the additional time it will take but resources in the form of software and possibly the added support of an accountant.”
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