In today’s ever-evolving digital landscape, HMRC is taking steps to bring tax firmly into the 21st century. As such, Making Tax Digital (MTD) represents the ongoing initiative to streamline systems and increase efficiency for the modern taxpayer. In essence, tax is going digital... but what does this mean for landlords in the UK? Whether you’re a full-time landlord or planning a room-rental side hustle, read on to explore how MTD might apply to you!

When does MTD for landlords start?

For many landlords in the UK, MTD has already begun. This is because MTD for VAT-registered businesses is now in effect. Therefore, landlords who have registered their business for VAT must be complying with MTD today.

However, whether you need to pay VAT as a landlord also depends on the specifics of your services (see below).

In addition, HMRC is also planning to roll out MTD for ITSA soon. This will affect landlords operating as sole traders. Therefore, even if MTD is not relevant for you yet, it might be relevant soon.

MTD for VAT: landlords

Originally introduced in April 2019, MTD for VAT is now mandatory across all VAT-registered businesses (unless you have been granted an exemption). This means that all VAT-registered landlords must comply – regardless whether turnover exceeds the VAT threshold (£90,000 per year).

Do all landlords pay VAT?

No – not all landlords have to pay VAT. Income from residential rentals is typically exempt (“zero-rated”). On the other hand, holiday rentals and other short-term, furnished rentals are not exempt. Therefore, if you’re renting out furnished properties or a spare room for holidaymakers, you must expect to submit VAT Returns to HMRC.

With online services such as AirBnB increasing in popularity, it has never been more important to pay attention to this distinction. This is particularly relevant given HMRC’s recent new legislation concerning tax-related data collected from digital platforms. If you are unsure whether VAT applies to you as a landlord, then it is recommended that you seek professional guidance for peace of mind.

MTD for VAT requirements

Landlords turning over more than £90,000 in taxable turnover must register for VAT. You will automatically be signed up to MTD for VAT, and be expected to use MTD-compatible software such as AbraTax (unless an exemption has been granted). For landlords turning over less than the VAT threshold, voluntary VAT registration is also possible.

MTD for VAT usually requires businesses to:

  • Include VAT, at the correct rate, for products and services
  • Maintain digital business/financial records
  • Submit quarterly VAT Returns via MTD-compatible software

How to submit your MTD VAT Return

To submit your quarterly VAT Return, HMRC requires you to use MTD-compatible software (or pay an agent to do so). AbraTax provides low-cost, HMRC-recognised MTD software for landlords (and other businesses) to submit quick and easy VAT Returns.

Benefits of MTD for landlords

Overall, MTD opens a range of potential benefits:

  • Time-efficiency: Digital record-keeping and MTD-enabled automation can save landlords time and reduce their administrative burden.
  • Savings: Using MTD software, such as AbraTax, allows for access to professional services providing low-cost (or free!) alternatives to employing an agent/accountant.
  • Accuracy: Maintaining up-to-date digital records and submitting tax data digitally can help to minimise error and ensure compliance with HMRC’s regulations.
  • Convenience: Digital bookkeeping and HMRC-recognised MTD software mean that your essential financial data can be accessed securely across many platforms and at any time.

Conclusion

As it stands, Making Tax Digital is already an important topic for many landlords. If your business is VAT-registered, or if you are turning over more than £90,000 in taxable income, then you should expect to be submitting VAT Returns via MTD-compatible software. However, bear in mind that not all landlords need to pay VAT (e.g. if providing long-term residential rentals).

If you are a landlord operating as a sole trader, MTD will soon become even more relevant: Self Assessment is also going digital! To get ahead of the curve and make the most of MTD now, why not consider using AbraTax’s free Self Assessment service today?

Disclaimer: We aim to offer educational articles on our blog, focusing on tax-related topics. However, it's important to note that over time, the relevancy of this content might diminish, and we cannot guarantee accuracy. While these articles serve as a tool for enhancing tax knowledge, they are not a replacement for expert advice in accounting, taxation, or legal matters, given the unique nature of each individual's situation. Should you require personalized assistance, we encourage contacting HM Revenue and Customs (HMRC).