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6 Min. Read

Making Tax Digital For Landlords

Making Tax Digital For Landlords

Making Tax Digital (MTD) for landlords begins on 6th April 2023 and is compulsory for everyone who meets the criteria.

2023 may seem quite far off in the future. But we’re talking about it now. Because we know that timely preparation decreases your stress. And because this change to the tax system tax will impact on your property business.

All the rules for MTD for landlords are under HMRC’s ‘Making Tax Digital for Income Tax’ heading. This is because they apply to all self-employed people making over £10,000 per year, as well as property income.

Here’s What We’ll Cover:

What Are the Making Tax Digital For Income Tax Criteria?

What Are the Actual Making Tax Digital Changes?

You’re Going to Need New Software…

Are There Any Making Tax Digital Benefits for Me?

Do I Have to Wait Until 2023 to Get Started On Making Tax Digital For Income Tax?

Why Is the Government ‘Making Tax Digital’?

What Are the Making Tax Digital For Income Tax Criteria?

If you make over £10,000 of rental income a year, you’ll have to participate in Making Tax Digital for Income Tax. It’s important to note that this is £10,000 turnover – not profit-based, like other segments of HMRC’s Making Tax Digital plan.

Are there any exemptions to the Making Tax Digital changes?

As a landlord, you won’t have to comply with Making Tax Digital rules if:

  • You make less than £10,000 per year
  • You rent to lodgers as part of the ‘Rent a Room’ scheme
  • You rent out holiday lets
  • You’re already complying with Making Tax Digital for VAT because you earn over the £85,000 VAT threshold or you’ve voluntarily registered for VAT
  • Rental income or self-employed earnings aren’t your only source of income

HMRC’s rules for Making Tax Digital for landlords include exemptions on the grounds of disability, religion and other very specific circumstances. But these are very few and far between.

What Are the Actual Making Tax Digital Changes?

You’ll need to adapt to 2 main Making Tax Digital changes; keeping records digitally and new paperwork that must be sent to HMRC online.

At the moment, you’re reporting to HMRC through the self-assessment system. Filling in everyone’s favourite form – the self-assessment tax return. (Yes, we’re joking!)

From 6th April 2023, if you’re in Making Tax Digital for Income Tax, this will be replaced with:

  • Quarterly reports of expenses and income to HMRC
  • An End of Period Statement (EOPS) sent to HMRC at the end of each accounting period, including any tax relief.
  • Submit 1 legally binding ‘Final Declaration’ at the end of the tax year. This is your official sign off on HMRC’s income tax calculations and your commitment to providing all necessary, truthful information.

No more self-assessment tax returns!

You’re Going to Need New Software…

To meet both of these obligations, you must have accounting software or property management software that’s fully compatible with HMRC. If you’re already using FreshBooks, don’t worry, we’ve got it in hand. Your business records are already digital and we’re fully in line with HMRC requirements

There are two options. If you want to keep your current accounting systems, you can get ‘bridging software’ that translates that information into the correct format and links to HMRC’s portal. Or you can get software like FreshBooks that organises all your records, generates required reports in a couple of clicks and links directly to HMRC.

At the very start of their Making Tax Digital programme, HMRC suggested the idea of providing taxpayers with free software they’d produced. But this didn’t happen. Instead, they publish a list of ‘recognised’ software for you to choose from. Some options are free. And you can opt for downloadable or cloud based software. At the moment, the list for Making Tax Digital for Income Tax software is very short, compared with the Making Tax Digital for VAT range. This will increase as the deadline gets closer.

Are There Any Making Tax Digital Benefits for Me?

As a landlord, this may just seem like huge, somewhat unnecessary, upheaval. If you’ve always filed your tax return and paid your tax bill on time, then this may seem like HMRC are solving a non-existent problem. And it’s going to cost you time and money to get ready.

But once you’ve got used to your new software and settled into the system, as a landlord you should see some benefits, like:

  • Save time on record-keeping because you collect everything digitally as you go
  • Continuously updated accounts mean a constantly accurate picture of your cash flow
  • Can get a snapshot of your property business' income and outgoings at any time, which makes it easier to develop and grow your business
  • No more worrying about having enough set aside for your taxes because you already know what it’s going to be

You’re not being asked for any new information, you just have to collect it and present it in a new, digital format.

And, even more importantly, you’re not being charged any more tax and the deadline to pay your tax bill remains the same.

Do I Have to Wait Until 2023 to Get Started On Making Tax Digital For Income Tax?

If you’re seeing the benefits and would like to get started now, you can join HMRC’s pilot scheme. You just need to check that you meet all the eligibility criteria. Unfortunately, accepting any COVID-19 financial support currently rules you out.

Why Is the Government ‘Making Tax Digital’?

Most taxpayers just want to get their tax right. But, despite their best efforts, the Treasury loses out every year just from genuine administrative errors. For example, government figures show that errors cost £8.5 billion in the 2018-19 tax year. Changes to the tax system are their way of reducing this huge loss of taxes.

As the financial secretary to the Treasury, Jesse Norman, said: “Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.”


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