Being a landlord can be a lucrative business, but this opportunity comes with responsibility. As the world continues to go digital, it is now more essential than ever for landlords to stay on top of key developments.

In today’s article, we introduce you to Making Tax Digital for landlords, including key deadlines, benefits and compliance using digital tools. If you want to stay compliant and avoid penalties, read on below for the details.

What is Making Tax Digital?

Making Tax Digital (or MTD) is HMRC’s recent overhaul of the UK’s taxation system. It is a transition into digitalised tax, replacing the older paper-based methods with online and computer-based options. Eventually, many of the old systems will be entirely replaced by their online alternatives.

At present, Making Tax Digital for VAT is already in operation: unless you have a special exemption, you must submit quarterly VAT returns using MTD-compatible methods such as AbraTax. As for Income Tax, MTD will soon become mandatory for Self Assessment tax returns also.

The Goals of MTD

MTD has many goals; improvements are expected both for the user and HMRC. Let us examine a few below:

  • Accuracy – by transitioning to digital systems, we can expect improvements in accuracy at all levels of tax-reporting.
  • Simplification – by simplifying the tax process, it should be easier for individuals and businesses to keep track of and meet their obligations.
  • Efficiency – these improvements should increase overall efficiency for both the taxpayer and the UK’s taxation system. This will save time and money in the long run, allowing for resources to be applied in other areas.
  • Compliance – tax compliance should be boosted by the new, streamlined processes. This helps people to stay on top of their obligations while reducing financial problems for HMRC (such as the “tax gap”).

Why MTD Matters for Landlords

As a landlord, it is essential to keep up to date with MTD. Although not yet mandatory, Making Tax Digital for landlords is already underway. This is partly because Income Tax Self Assessment is going digital, meaning that landlords will need to file personal property income online.

Another side to MTD for landlords is VAT. If your property business’s taxable income exceeds the VAT threshold, then you must submit quarterly VAT returns to HMRC. You must do this by using MTD-compatible software such as AbraTax.

In general, MTD is not just an obstacle we need to overcome. Although there are repercussions (such as penalty fines) for non-compliance, MTD does also provide an opportunity for benefits:

  • Easier compliance with your legal obligations
  • Reduction of human error (i.e. improving accuracy)
  • Quicker tax returns (online vs. paper forms)
  • More transparent tax-planning

As a landlord, you are doubtless aware of constraints on time and resources. Luckily, Making Tax Digital can help to free up both of these things!

Who Needs to Comply with MTD?

MTD compliance is currently mandatory for all VAT-registered businesses. If you have not already registered for VAT, you must do this if your business income exceeds £90,000 in any 12-month period. Therefore, any landlords turning over more than £90,000 (in taxable turnover) must comply with MTD as part of the VAT process.

Although the taxable turnover threshold (as of 1 April 2024) is currently £90,000, we can expect it to increase in the future. Furthermore, even if your business does not currently meet the threshold, you can choose to register (“voluntary registration”). If you predict your turnover to reach the threshold in the next 30 days, you must also register now.

For landlords receiving property income as an individual (e.g. rather than receiving a salary through a registered company), you probably also need to report this via the annual Self Assessment process. Although MTD for Self Assessment is not yet mandatory, we do recommend that you get used to filing tax online now.

The current threshold for reporting your property income via Self Assessment is £2,500 (after allowed expenses) or £10,000 (before allowable expenses). The first £1,000 of your property income is tax-free; this is your “property allowance”. If property rental income falls between the £1,000 and £2,500 thresholds, you must contact HMRC directly.

When does MTD for landlords start?

For many landlords, it has already begun. If your business’s taxable turnover exceeds the VAT threshold (currently £90,000), it is mandatory for you to be MTD-compliant. This entails submitting quarterly VAT returns via an HMRC-approved service such as AbraTax.

For landlords earning property income as an individual (e.g. not through a limited company), Income Tax rules must be followed. MTD for ITSA will become mandatory in two main stages:

  • April 2026 – landlords with personal income above £50,000 will need to start using MTD for Self Assessment
  • April 2027 – landlords with personal income above £30,000 will need to start using MTD for Self Assessment

Even if MTD is not yet mandatory for you, you could benefit from preparing today.

How to Prepare for MTD as a Landlord

As a landlord, it is never too early to prepare for MTD. The fact is: Making Tax Digital for landlords is either already in effect for you or it probably will be very soon. The first step is to work out what is relevant to you:

  • If your business's taxable turnover exceeds the VAT threshold, you need to pay VAT
  • If you are receiving property income as an individual, prepare to report this in your Income Tax Self Assessment

Once you have identified which tax obligations apply to you, you must take steps to meet them:

MTD-compatible software

In order to meet your MTD tax obligations, you will need to choose appropriate software for filing your returns. For VAT, AbraTax provides an HMRC-recognised service for quickly and easily “bridging” between your Excel-based financial records and HMRC’s tax return system.

For Self Assessment, AbraTax also provides a (currently free!) service, allowing you to smoothly and efficiently insert and submit the relevant Income Tax data directly to HMRC.

Digital records

Part of complying with MTD as a landlord is maintaining digital records for your business. Digital financial records represent a key development in the changeover to digital taxation, providing a means to reduce human error.

Digital links

Vital to keeping digital records is the obligation to reduce manual input as much as feasible. This means that “digital links” (e.g. hyperlinks between Excel cells) should be used wherever possible. Under MTD for VAT, the manual transfer of data is no longer permitted.

Keep a tight schedule

There are certain essential MTD deadlines you must not miss:

  • For VAT-registered businesses, you are expected to submit quarterly VAT returns using MTD-compatible software (such as AbraTax’s bridging software).
  • For Income Tax Self Assessment returns, you should file a return in time for the January deadline each year. In addition, you might need to make advance payments for the upcoming tax year filing (so-called “payments on account”). These payments are typically paid each January and July.

Rent-a-Room scheme

Depending on your current landlord activities, you might be entitled to benefits under HMRC’s Rent-a-Room scheme. This initiative is aimed at those looking to rent out furnished accommodation within their own home.

Common Challenges and How to Overcome Them

When complying with MTD as a landlord, there are certain challenges you might encounter. It is important to be prepared to face and overcome challenges such as:

  • Transitioning to digital records – as part of MTD compliance, it is vital that you begin to maintain digital records of your business finances. This means that maintaining physical ledgers or writing out your accounts manually is no longer permissible (even if you copy them into a digital spreadsheet later). Record data from the first instance digitally – and remember to save backups.
  • Choosing software – as usual, there is a lot of software out there to choose from. For VAT compliance, bespoke bookkeeping software can be extremely costly and difficult to learn. This can often be a drain on valuable resources (i.e. time and money). For Self Assessment tax returns, the sheer number of forms and supplementary pages can also be overwhelming at times.
  • Meeting deadlines – in life, deadlines are often somewhat flexible. However, tax deadlines should not be treated this way. This is because HMRC has the power to levy considerable fines (among other penalties) for late payments. Efficient scheduling and forward-planning are essential.

How AbraTax Makes MTD Easy For Landlords

Luckily, AbraTax offers landlords a simple and cost-effective solution for both VAT and Self Assessment returns. Even better is that AbraTax is officially an HMRC-recognised service provider (meaning you can trust us to file your returns smoothly and efficiently).

For VAT-registered businesses, AbraTax provides cutting-edge Excel bridging software. This allows users to avoid paying for (and spending time learning) complex and expensive computer tools. Instead, you simply link up your existing spreadsheet’s data with HMRC’s tax system.

VAT returns with AbraTax start from only £8 per month (paid annually), allowing you to submit your quarterly returns with confidence and ease.

AbraTax also provides a (currently free) Self Assessment service. With helpful step-by-step guidance and full support for HMRC’s supplementary pages, you can rest assured that everything you need for a successful Income Tax Self Assessment submission is ready to go. This is perfect for landlords needing to submit property income data to HMRC.

Conclusion

In this comprehensive guide on Making Tax Digital for landlords, we have covered a wide range of essential information. To summarise, there are some important points to bear in mind when moving forwards:

  • MTD is already here for VAT and will soon be in full force for Self Assessment. This means that anyone meeting the VAT threshold must register and comply with MTD today.
  • For Self Assessment, it is useful to familiarise yourself with MTD processes and begin using appropriate software. You must also try to use digital records wherever possible.
  • Although MTD requires a change in business processes, it is not all negative. There are also benefits to MTD for landlords. For example, you can capitalise on quicker and easier tax returns, and a more efficient use of constrained resources.
  • Challenges can arise when transitioning to Making Tax Digital for landlords – but they can be overcome. One way to achieve this is by finding appropriate software.

AbraTax provides a simple and cost-effective solution to MTD – both for VAT and Self Assessment returns. By signing up today, you can take control of your tax, saving both time and money along the way.

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).