What should your landlord clients know about Making Tax Digital for Income Tax?

What should your landlord clients know about Making Tax Digital for Income Tax?
Article by GoSimpleTax

How much do your landlord clients know about Making Tax Digital (MTD)? Chances are, they may know little or nothing. But with significant changes scheduled in the coming years, they should at least know a few basic facts, so they can start to prepare and minimise impact.

You can play a key role in ensuring that they get the information and advice they need, of course, while pointing them in the direction of sources of further support and guidance. This guide will help you.

Here’s what we’ll cover

• How MTD will change record keeping and reporting for landlords
• When MTD for Income Tax will be introduced
• How landlords can voluntarily join MTD for Income Tax now

Why is MTD being introduced?

As you’ll no doubt already be aware, Making Tax Digital is an ambitious government initiative that will transform how people, businesses and their accountants/bookkeepers report data to HMRC.

According to the government, MTD seeks to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes (estimated to have cost more than £9.9bn in lost tax revenue in 2017-2018 alone).

How will Making Tax Digital for Income tax change things?

When introduced, landlords (and/or their agents) will need to use MTD-compatible software to maintain digital records of the landlord’s income and expenses.

MTD-compliant software will summarise figures, which must be submitted online via the landlord’s HMRC digital account (they’ll get up to a month after every quarter-end to do so). Landlords will also be able to see how much tax they owe, based on the information supplied, so they can better budget for paying their tax bill, which could help many.

At the end of the tax year, the landlord will need to finalise their business income and submit a final declaration, confirming that the updates they’ve provided are accurate, with any accounting adjustments made. Then, they’ll soon receive their tax bill. They must submit their final declaration and pay the tax they owe by 31 January the following tax year.

When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from the accounting period starting on or after 6 April 2023.

They’ll still need to send HMRC a Self Assessment tax return for the tax year before they signed up for MTD for Income Tax. But after that – no more annual Self Assessment tax returns and all the hassle and panic that can go with them.

For those already using accounting software, HMRC recommends asking the provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists Making Tax Digital for Income Tax-compatible software. Those still using paper-based record-keeping system will need to start using an MTD-compatible digital solution.

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. Your landlord clients may be able to sign up voluntarily for MTD for Income Tax if:

• they’re a UK resident
• they’re registered for Self Assessment as a landlord and
• their returns and payments are up to date.

They can sign up now for their current or next accounting period. It could be a good way to get used to MTD requirements and make sure they have the right software/systems in place.

Landlords can sign themselves up to the MTD for Income Tax pilot scheme via government website GOV.UK. They’ll be asked for their:

• name
• email address
• National Insurance number
• accounting period
• accounting type (eg cash or standard accounting)
• Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up.

If your landlord client needs to report income from other sources (eg wages from working for someone else), they cannot sign up voluntarily.

If you maintain you landlord client’s financial records and complete their tax returns, you can sign them up for MTD for Income Tax. Obviously, you’ll need all of the above information to hand if they ask you to sign them up.

MTD: What if a landlord has more than one property for rent or let?

As you’d expect, they’ll only need to report their earnings and expenses via MTD once for all of their properties together, they don’t need a digital account for each property.

Making Tax Digital: What about co-ownership?

If a property is owned by a business partnership of which the landlord is a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.

Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.

Where property is jointly held, for example, a husband and wife own a property for rent or let, each person who has received income must report it separately, after registering for Making Tax Digital.

More information for landlords about MTD for Income Tax

• Your landlord clients can head to government website GOV.UK for HMRC guidance on Making Tax Digital for Income Tax.
• HMRC has also created videos about Making Tax Digital for Income Tax and landlords can view a recorded webinar on Making Tax Digital for Income Tax.

About GoSimpleTax

GoSimpleTax is a secure cloud-based solution and it is officially- recognised by HMRC.
Our software includes partnership, non-resident and previous year returns, it has an easy-to-use interface and submits direct to HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with a simple dashboard allowing you to switch between clients easily.

IAB members receive a 25% discount on GoSimpleTax to receive your discount code sign-up here www.gosimpletax.com/iab (example 100 client submissions £187.50 inc using discount)