Making Tax Digital for Income Tax: what landlords need to know
This guide explains everything you need to know about Making Tax Digital (MTD) for Income Tax as a landlord, including how the initiative will impact you and what you’ll need to do to prepare for the changes coming into effect in April 2024.
What is Making Tax Digital?
Making Tax Digital (MTD) is the government’s initiative to implement a fully digital tax system in the UK. The aim of the initiative is to make tax administration more efficient and easier for taxpayers through the implementation of a fully digital tax system.
A phased rollout of MTD is already under way and the initiative is currently split into three areas:
- Making Tax Digital for VAT requires all VAT-registered businesses to keep digital records and use MTD-compatible software to submit their VAT returns electronically.
- MTD for Income Tax, also known as MTD for Income Tax Self Assessment (MTD for ITSA), will replace the current system of annual Self Assessment tax returns. For landlords and self-employed business owners, MTD for Income Tax will come into effect in April 2024. Partnerships with individual partners will be required to follow the rules from April 2025.
- MTD for Corporation Tax is expected to be the next stage in the initiative. HMRC has advised that 2026 is the earliest it might come into effect.
The introduction of Making Tax Digital for Income Tax for landlords and self-employed business owners in April 2024 will change the way that these groups are required to report their income and make tax submissions to HMRC.
Which landlords will be affected by MTD for Income Tax?
MTD for Income Tax rules will apply to all landlords whose combined property and/or business income is £10,000 or more a year. For these landlords, MTD for Income Tax will replace the current process of completing an annual Self Assessment tax return. (Landlords who earn a combined business and/or property income of between £1,000 and £10,000 a year will need to continue filing annual tax returns through the Self Assessment process.)
If you're a landlord and your combined property and/or business income is £10,000 or more per year, you will have to follow MTD for Income Tax rules from 6th April 2024.
Under these rules, HMRC will require you to use software to:
- keep digital records of your property and/or business income and expenses
- send quarterly updates of your property and/or business income and expenses to HMRC
- finalise your property and/or business income by submitting an end of period statement (EOPS) and final declaration to HMRC
Keeping digital records
After 6th April 2024, landlords affected by MTD for Income Tax will need to use compatible software to keep a digital record of all their property income and expenses. If you’re a landlord and you’re also a self-employed business owner, Making Tax Digital legislation will require you to keep digital records of your business income and expenses separately.
Sending quarterly updates
Under the new rules, affected landlords will need to send a summary of their business income and expenses to HMRC every three months using compatible software.
The deadlines for submitting quarterly updates will be the same for everyone who has to follow MTD for Income Tax rules. From 6th April each year from 2024 onwards, these deadlines will be:
- 5th August
- 5th November
- 5th February
- 5th May
Finalising your income
At the end of the tax year, landlords affected by MTD for Income Tax will need to finalise their property and/or business income by submitting:
- an end of period statement (EOPS) for each source of property or business income
- a final declaration (which will replace the annual Self Assessment tax return)
The process of submitting an EOPS and final declaration for each source of property or business income allows you to confirm that the updates you’ve sent to HMRC throughout the tax year are correct. It also gives you an opportunity to add details about any relevant personal income or tax reliefs you received during the tax year, and to make other necessary adjustments.
For each tax year, you’ll be required to submit your required end of period statements and your final declaration by 31st January of the following tax year. You’ll also be required to pay the tax you owe in relation to each tax year on this date.
FreeAgent for Landlords
If you’re a landlord and you’re going to be affected by the introduction of MTD for Income Tax, you’ll soon be able to use FreeAgent for Landlords to follow the new rules.
It’s a version of our award-winning accounting software that we’re building specifically for landlords who:
- do not treat their property rentals as limited companies for tax purposes
- earn income from up to five properties
- earn a combined property/self-employed business income of at least £10,000 a year
FreeAgent for Landlords is designed to make it easy for you to manage your property finances and will include all the relevant functionality of FreeAgent, including features that can automate the process of recording rental income. When MTD for Income Tax comes into effect, you’ll be able to use FreeAgent for Landlords to make the required tax submissions directly to HMRC.