Making Tax Digital (MTD) becomes compulsory for landlords (and small businesses) from April 2024. (Partnerships get their own MTD rules from April 2025). If you are not already under Self-Assessment, you will need to register for MTD by April 2023.
MTD will require any landlord (and/or small business) with an annual turnover exceeding £10,000pa (gross income, not profit) to report income and expenses electronically to HMRC quarterly, with a fifth “End of Period Statement” (EOPS) due by 31 January after the tax year (for items such as tax adjustments or corrections). For now, Income tax will still be paid on the usual dates (31 January and 31 July). Late or incorrect returns will attract the inevitable penalties.
In its simplest form, the turnover test is applied to total gross income (before ANY expenses). Example: business turnover of £4,000 and rental income of £7,000 is caught by MTD. However, if the rental income was joint with your spouse, total applicable turnover is only £7,500 and MTD does not apply.
The records must be kept and submitted electronically. This could mean specialist software or simpler programs such as Excel with additional “bridging” software being used. If you breach the £10,000 turnover test, the only exemption is for “Digital Exclusion” due to age, disability, or another similar reason.
Retained data will be declared in certain categories (broadly similar to what is currently declared on your Tax Return) but draft rules say that separate reports will be needed for Self-employment income; UK rental; UK Furnished Holiday Lets (FHL); non-UK rental and Non-UK FHL. Multiple reports could therefore be required each quarter.
Income declared under MTD will no longer be declared on your SA Return – the EOPS will do that (but you may still need an SA Return for non-MTD declarations such as investment income).
Although some rules are still draft, you can start to plan for MTD’s arrival by converting manually held paper records into digital form and getting used to keeping your records on a quarterly basis.
For borderline cases, you could deliberately keep the total turnover under £10,000 each year; or place let property into joint names (but please take professional advice before doing so).
Hope this helps.
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