Making Tax Digital for income tax – a guide for landlords

Making Tax Digital for VAT-registered businesses was rolled out for those with turnover above the VAT threshold in 2019 and extended to all VAT-registered businesses in 2022.

What is MTD for ITSA?

The next stage of the initiative is Making Tax Digital for income tax and Self-Assessment (MTD ITSA).

It will require Self-Assessment taxpayers to use government-approved software to file their tax returns digitally. They’ll also move from an annual return to quarterly returns.

The government says that these changes will make the tax system “more resilient and effective, boost business productivity, and better support taxpayers”.

Making Tax Digital for income tax has been delayed several times but is currently due to come into force from 6 April 2026.

MTD for landlords – key dates and criteria

Making Tax Digital is being rolled out for Self-Assessment taxpayers in stages. These are the key dates and criteria landlords need to be aware of:

• 6 April 2026 – MTD for income tax rules will apply to landlords with an annual income of £50,000 or more. This includes combined income from property and other business interests or employment

• 6 April 2027 – Making Tax Digital will be extended to landlords with property and business income of £30,000 or more a year

• 6 April 2028 – landlords with annual property and business income of £20,000 or more will need to comply with MTD for income tax

MTD for ITSA – what landlords need to do

Making Tax Digital will require landlords to keep digital records of their property income and allowable expenses for tax purposes.

To do this, they’ll need to use government-approved software that’s compatible with MTD.

Instead of an annual tax return, landlords will need to provide HMRC with quarterly tax updates by the following dates:

• 7 May

• 7 August

• 7 November

• 7 February

They’ll then need to submit a ‘final declaration’ by 31 January each year. The final declaration will confirm that the quarterly updates were accurate. This is also when landlords can apply for any allowances or tax reliefs and provide extra relevant tax information.

Similar to the current Self-Assessment system, the tax owed for the previous tax year will need to be paid by a 31 January deadline.

Limited company landlords won’t be affected as they’ll continue to pay corporation tax instead of income tax.

What information do you need to provide?

In your quarterly updates, you’ll need to provide:

• income records – for example the rent you receive from tenants. You’ll need to record the date it was received, the amount, and who it was paid by

• expenses records – for example any repairs or maintenance you complete. You’ll need to report the amount, date, and category of the expense

• You’ll need to provide digital copies of receipts and invoices to support your expenses records, as well as bank statements to support your income records.

You can use the final declaration to:

• make adjustments to individual transactions

• claim reliefs or allowances

• choose the trading allowance instead of deducting expenses

• You’ll be asked to confirm that the information you’ve provided is correct and that you’ve finalised your income tax position.

The information you provide will be used to create your final Self-Assessment tax bill.

For more information, you can read the government manual for using Making Tax Digital for income tax.

What happens if landlords have multiple income streams?

If you have multiple income sources, such as other self-employment income, you’ll need to record them as part of Making Tax Digital for income tax.

Digital records for other income sources must be kept separately.

How to register for MTD ITSA:

You can sign up for Making Tax Digital on the government website.

To sign up, you’ll need to be registered for Self-Assessment and have your Government Gateway credentials to hand. You’ll also need to have identified which MTD-compatible software you’re going to use.

Even if you’re not due to comply for a while, you can sign up voluntarily and get to grips with the new system.

How can landlords prepare for Making Tax Digital?

For many landlords, the change to MTD will require significant changes to their accounting process. And although your deadline to comply with Making Tax Digital may still be months or years away, there are things you can do now to make the transition as smooth as possible.

• register now – you can already sign up to MTD voluntarily, which will give you time to get to grips with the new system

• research software – take a look at the available options, most will be MTD-compatible and many of them are free

• go digital – if you haven’t already, start recording your transactions and expenses digitally

• think quarterly – consider what you’ll need to change when you’ll need to report your income four times a year instead of once

• speak to an accountant – a professional will be able to give you guidance on how MTD works or even manage the tax return on your behalf

• What are the penalties for non-compliance with MTD ITSA?

• As with Self Assessment, there are penalties for failing to comply with Making Tax Digital for income tax.

You could receive a penalty fine for:

• missing a quarterly update or final declaration deadline

• missing a tax payment deadline

• persistently missing reporting or payment deadlines

More information on MTD can be found on the government website HERE.

If you are confused about these changes or would like any other advice relating your bookkeeping or accounts, please get in touch with us here at The Hollies Bookkeeping in Shropshire on 01743 790086, email info@holliesbookkeeping.co.uk or visit www.holliesbookkeeping.co.uk

Photo by Dan Dimmock on Unsplash

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