The introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) represents a fundamental shift in how landlords manage their tax obligations. From April 2026, landlords with property income above £50,000 (reducing to £30,000 from April 2027) must maintain digital records, submit quarterly updates and make a final declaration to HMRC. This transformation has left many property investors wondering: how exactly do I calculate my taxes under this new system?
This comprehensive guide breaks down the MTD for landlords tax calculation process into manageable steps, showing you exactly how to navigate quarterly submissions, utilise MTD-compatible software, and ensure accurate tax calculations while maintaining full compliance with HMRC requirements.
Key Summary of MTD for Landlords Tax Calculation
MTD for landlords tax calculation follows the same fundamental principles as traditional Self-Assessment, but with quarterly reporting rhythm instead of annual
Your quarterly updates are informational summaries, not tax payments—actual tax liability is calculated in your final declaration
MTD-recognised software is mandatory and should automate most of your calculation processes, but you remain responsible for accuracy
The calculation formula remains straightforward: Rental Income - Allowable Expenses = Taxable Profit, which combines with other income to determine your tax band
Capital allowances on furniture, equipment, and fixtures can significantly reduce your taxable rental profit
Professional accountant support is valuable for final declarations, and complex situations, even if you manage quarterly submissions yourself
What Changed in Landlords Tax Calculation Under MTD?
Making Tax Digital for Income Tax Self-Assessment fundamentally changes the rhythm of tax reporting for landlords. Rather than completing a single Self-Assessment return each January, you'll now maintain digital records throughout the year and submit quarterly updates and a final tax return to HMRC.
Core Changes
The tax calculation under MTD for landlords itself hasn't fundamentally changed—you're still reporting rental income, deducting allowable expenses, and calculating your tax liability based on profits. What's transformed is when and how you report this information to HMRC.
The MTD for Landlords Tax Calculation Framework
Setting Up Your Digital Records System
Before you can calculate anything, you need MTD-compatible software. HMRC maintains a list of approved software options, ranging from free basic packages to comprehensive property management platforms.
Key features your software should include:
Digital receipt capture and storage
Automatic categorisation of income and expenses
MTD quarterly update submission capability
Integration with your business bank accounts
Mileage tracking for property-related travel
Tenant and property management features
Once your software is configured, link it to your business bank accounts. This automation dramatically reduces manual data entry and ensures your records accurately reflect your actual transactions.
Breaking Down the Quarterly Process of MTD for Landlords Tax Calculation
Making Tax Digital for Income Tax requires landlords to submit quarterly updates to HMRC instead of reporting income just once a year. These updates provide HMRC with a real-time view of your rental income and expenses, helping reduce errors and improve tax accuracy.
Key Items to Calculate in Quarterly Update
When submitting your quarterly update, you'll need to calculate and report the following:
Rental Income Sources:
Monthly rent collected from all properties Service charge income Ground rent received (if you're a freeholder letting property) Any other property-related income
Allowable Expenses to Deduct:
Mortgage interest (claimed as a tax credit, but recorded here) Letting agent fees Property maintenance and repairs Insurance premiums Utility bills you pay directly Council tax (if you're responsible) Property management software subscriptions Professional fees (accountant, legal services) Advertising for tenants Ground rent and service charges you pay
Basic Quarterly Calculation of Making Tax Digital for Landlords
Formula:
Total Rental Income (Quarter) - Total Allowable Expenses (Quarter) = Quarterly Profit/Loss
Example:
Rental Income: £12,000
Allowable Expenses: £4,500
Quarterly Profit: £7,500
This profit of £7,500 is for your records, not your tax bill. It’s submitted as a quarterly summary to HMRC.
Quarterly Submission Breakdown
Each quarter follows the same tax calculation method for Making Tax Digital for landlords and must be submitted to HMRC within one month after the quarter ends. Taxpayers have two reporting options: Standard Tax Quarters, which run from 6 April to 5 April and Calendar Quarters, which align with standard calendar months.
Calendar quarters offer simpler alignment with bookkeeping systems and monthly records, while the submission deadlines remain the same as standard tax quarters.
Each quarter, you're performing the same income minus expenses tax calculation and submitting summary updates. Your MTD software tracks the cumulative position, so you can see your projected annual profit building throughout the year.
Update | Standard Quarter Period | Calendar Quarter Period | Submission Deadline |
|---|---|---|---|
Q1 | 6 April – 5 July | 1 April – 30 June | 7 August |
Q2 | 6 July – 5 October | 1 July – 30 September | 7 November |
Q3 | 6 October – 5 January | 1 October – 31 December | 7 February |
Q4 | 6 January – 5 April | 1 January – 31 March | 7 May |
Critical point: These quarterly submissions are not tax payments. They're informational updates that help HMRC track your income throughout the year. Your actual tax liability is calculated later in final declaration.
Complete Annual Tax Calculation Under MTD for Landlords
While Making Tax Digital for Income Tax shifts landlords to quarterly updates, an annual submission is still required. This final declaration reconciles all the quarterly updates with your total income and expenses for the tax year.
The purpose of the annual submission is to:
Confirm your total rental income and allowable expenses for the year
Apply any adjustments, any allowable claims and reliefs including capital allowances and non-allowable costs
Calculate your final taxable rental profit
Determine the actual income tax liability due
