As of April 2023, many individuals currently using 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 (e.g. rent) exceeds £10,000 per year.
Note that in this article we focus solely on landlords, or landlords who also have sole trader income.
What do landlords need to do for income tax?
For those within its scope, the rules of MTD for Income Tax are as follows:
- Software compatible with MTD for Income Tax must 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 (currently five years).
- You or your accountant must register you for MTD for Income Tax before 6 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. You can send more than quarterly updates if it helps your situation. 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 31, 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 31, 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 31, 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).
What information do landlords need to send as part of MTD for Income Tax?
Compared to completing a Self-Assessment tax return, there’s no real change to the kind of information you’ll need to provide.
For example, you’ll still need to declare your income, and where it came from. You’ll still need to declare your allowable expenses.
The difference is that you’ll need to provide this information to HMRC more frequently (at least quarterly), and you’ll need to do so through software
For more information on MTD and the upcoming changes, visit the Sage Making Tax Digital Hub
You can also Sign up for our free live MTD webinar
Learn from our experts how the new legislation is going to affect your clients and how we can help you get ready for the biggest taxation change in a lifetime.