The UK government introduced Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) as part of its plan to modernise the tax system. There are quite a few things that it has raised for consideration for landlords and self-employed business owners. Will the requirements vary according to your earnings? Yes, for sure. Does MTD bring exemptions with it? Maybe (depends on the case).
This comprehensive guide will explore everything about Making Tax Digital for landlords need to know about MTD, including who it applies to, key deadlines, how to prepare, benefits, exemptions, and frequently asked questions.
What is Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)?
Making Tax DIgital for Income Tax Self-Assessment is an initiative by HMRC that aims to digitise the tax system, ensuring taxpayers maintain digital records and report their income and expenses online. HMRC introduced Making Tax Digital (MTD) to modernise and improve the UK tax system. The key objectives include:
- Reducing Errors: Digital record-keeping and real-time reporting help minimise mistakes and ensure accurate tax reporting.
- Simplifying Tax Management: MTD reduces paperwork and makes it easier for taxpayers to handle their tax affairs.
- Enhancing Efficiency: Digital processes improve productivity for both taxpayers and HMRC, enabling quicker and more accurate tax return processing.
- Future-Proofing the System: Embracing digital technology ensures the tax system remains modern, efficient, and adaptable to future needs.
MTD For Landlords
Under MTD, landlords must keep digital records and use compatible software to submit their tax returns to HMRC. Landlords who hold a UK National Insurance number and have rental income, along with UK self-employed income exceeding £50,000 are required to comply with specific tax obligations under Making Tax Digital for landlords
When Does MTD for Landlords Start?
For those affected by MTD for landlords, failure to submit the required MTD updates by the end of the following year, specifically by January 31, can result in penalties and fines.
Additionally, MTD requirements apply irrespective of the number of properties you own. When calculating your tax liability, all earnings derived from property, including rental income and sales income, must be aggregated for the tax year in question. This ensures comprehensive and accurate tax reporting under the MTD system.
Exemptions & Special Cases for Making Tax Digital for Landlords
In certain situations, exemptions from the Making Tax Digital for landlords requirements may apply. These exemptions are specifically designed to ensure that individuals or entities facing exceptional circumstances are not unfairly burdened by the new tax reporting system. Below are the key exemptions:
Insolvency or Business Closure
If you or your business are on the verge of insolvency or have decided to wind down operations, you will not be required to comply with the MTD regulations. In such cases, you are exempt from submitting digital tax returns and other related requirements.
Income Thresholds for Landlords & Self-Employed Individuals
- From 6 April 2026: Individuals with an annual gross income exceeding £50,000 from self-employment or property rentals must comply with MTD for Income Tax.
- From 6 April 2027: The threshold lowers to £30,000.
- From 6 April 2028: The threshold might lower to £20,000.
Those with income below these thresholds are not required to adopt MTD but may choose to do so voluntarily.
Trusts & Estates
Trusts, estates, and registered pension schemes are also exempt from the MTD requirements. If you are managing such entities, you do not need to comply with the digital tax reporting obligations under MTD.
Inability to Access Technology
Individuals who face difficulties in using digital technology may qualify for an exemption. This includes individuals who:
- Are elderly and may have health issues preventing the use of digital devices.
- Belong to religious groups that restrict the use of computers or certain devices.
- Live in rural areas with limited or no internet access.
In such cases, you should contact HMRC to discuss your situation and determine whether an exemption is applicable.
Important Considerations
While exemptions are available, it is essential to ensure that any claim for exemption is properly documented and communicated to HMRC. It is advisable to consult a professional or use HMRC’s resources to confirm your eligibility for an exemption. Proper communication with HMRC will help avoid misunderstandings and ensure that all documents are clear and accurate.
HMRC MTD Requirements: Understanding Digital Tax Rules for Landlords
HMRC has a firm stance on MTD; hence, it must be followed. HMRC, also wanting to modernise, has made tax compliance digital and less prone to errors. Paperwork and maintenance are quite traditional methods now. With MTD, HMRC intends to bring a more strict and accurate approach to tax compliance. Digitally, it will have many features for the landlords as well.
Since HMRC is quite serious about MTD, we must all be serious and always stick to its requirements. Following these rules will prevent you from paying penalties, remind you of dates, keep you updated about your tax liabilities, reduce audit risks, strive for financial planning, and upgrade your professional experience and work. One should not consider this just as a legal duty but also something that makes tax compliance less stressful and more accurate.
Being careless about tax-related matters can never be justified by any excuse. HMRC has always been strict about these things, and so should we all be. Not being able to comply with this law will cause problems with your finances. This starts with penalties, more strict and frequent inspections, loss of trust from creditors and clients, and the business's downfall. Moreover, HMRC wants the tax system to become digitalised since it has always focused on environmental well-being.
Updating All Your Rental Income & Expenses Digitally
Getting Familiar with MTD-Compatible Software for Landlords
MTD enhances the accuracy of tax calculations but requires landlords to familiarise themselves with the prescribed software. While it offers greater convenience, it may pose challenges for some, as training may be necessary to meet HMRC’s digital requirements. For Making Tax Digital landlords, software facilitates seamless digital record-keeping, enabling landlords to access reports and track finances more efficiently from their devices.
However, it is essential to use HMRC-approved software to avoid complications and potential penalties. HMRC may provide training and subscriptions to help users become proficient, but seeking professional assistance is recommended to ensure compliance and proper usage.
Quarterly Submitting Your Updates
As outlined, landlords are required to update their income and expenses on a quarterly basis, with particular attention to accurately reporting income, as this is the primary focus of HMRC. Ensuring all details are correctly documented is essential to avoid any issues with tax compliance.
These updates must be submitted within one month following the end of each accounting quarter. Additionally, while quarterly updates are mandatory, the tax return itself can still be filed annually. Compliance with these regulations is crucial to maintaining proper tax records.
If these aren’t submitted on time, HMRC may penalise you with fines and interest on these amounts. However, tax returns are an exception to this rule and can be done annually.
Preparing an End-Of-Period Statement (EOPS)
Summing up all the data from the quarterly updates and a supporting statement that contains proof of income and expenses shown in the quarters should be submitted. It may contain corrections and adjustments to the record of costs and incomes.
Final Confirmation/Declaration
This is simply like evidence stating that all your information is checked properly, cross-checked multiple times to be accurate, and has no misleading information. This declaration replaces the previous Income Tax Self-Assessment (ITSA) for income taxes.
Paying Your Taxes
After submitting all the reports and records, you must pay the outstanding taxable amount before the deadline, 31 January of the following year. Ensure you organise all records and comply with all the rules and regulations.
MTD for Rental Income & Filing Digital Tax Returns
MTD is the same for rental incomes. It requires a quarterly report using software approved by HMRC, which should be the main point you consider.
The transition period may, though, be different depending on your annual rental income. MTD is aimed to come into action for Income Tax Self-Assessment (ITSA) in April 2026.
You must put your incomes and expenses in suitable groups for convenience. Its type may vary and applies to all kinds of earnings, including income from your rental property or any other properties.
Be very cautious about the software you use, which may be the most troublesome part for some of you.
Some Tips for Managing & Maintaining Accurate Digital Records For MTD For landlords
- Keep all your records up to date for less errors
- Make different groups and subgroups depending on your type of expense and income
- Timely reconciliation would be necessary
- Use the best software according to your fit, which has features of automatic calculation, easily helps you find errors and keeps all the dates updated
- Seek professional help like HMRC resources, accountants, etc, whenever you feel like it.
Making Tax Digital for Property Income
For property owners, HMRC wants you to keep records for all of your properties individually in different sections within groups and subgroups. Keeping all the data clustered in one place will create confusion and a lack of transparency. Furthermore, it would have difficulty meeting the standards required by HMRC and can be liable for penalties. Hence, you should create a different category for incomes and expenses for different properties according to the software you are using. For example:
| Property Name | A | B |
|---|---|---|
| Income type: | Rent received | Land sold |
| Expenses: | Water bill, repairs | Repairs |
All these steps and follow-ups make it easier for landlords to keep their records properly arranged, which helps reduce any fraudulent activity or errors by your employees. It will keep all the data transparent and streamline your business. It becomes quite convenient for property owners to check the state of their building and earnings. As you can see, the expenses will indicate any inconvenience the tenant has brought to the building. Furthermore, tax-paying will become easier with digital papers and transactions.
Other different representations will help you analyse your income and expenses and, as a result, help you find your most profitable property. You can make the required changes once you know your plus points and weaknesses.
MTD will bring you various features like representing your data in a graphical form like pie charts and other visual representations, making it convenient for your analysers, financial planners and accountants to understand the data you provided better.
Implications of MTD for Different Categories of Landlord
MTD for Joint Landlords
Well, the answer is yes, and if you and your partner own lands jointly and have different agreements for profit sharing, then the rules for you and your partner may vary.
- Decide & Divide Responsibilities: Together, all the co-owners can distribute their work. Mark collects the rent from properties A and B, and John looks after the expenses of properties A and B. Keeping track and sharing information with all the co-owners is necessary
- Allocating Property Income: Anyone can handle the income and expenses of any property, but when it comes to sharing the profit, make sure it is divided properly and to whoever the share belongs to. Each one of the landlords should make clear divisions and report their share by themselves to HMRC.
- Based on the Type of Account: Joint owners may prefer separate and individual accounts, but some also like to have joint accounts as it makes work easy and divided. Somehow, keeping accurate records of profit-sharing in a joint account may be challenging. Ensure the accuracy of each of your shares before reporting it to HMRC.
Other rules are like those of other taxpayers, such as quarterly updating and reporting to HMRC. Likewise, use MTD software, which is best for joint owners and keeps your records separate based on the shares.
Communications play a huge role in this kind of business, so make sure you guys work like two sides of a coin. In addition, all the owners should ensure they agree to their duties and inform each other about the changes they want to bring.
| Details | Duke (London) | John (Oxford) | Total |
|---|---|---|---|
| Property Locations | London | Oxford | London & Oxford |
| Start Date | January 2026 | January 2026 | January 2026 |
| Net Earnings (After Expenses) | - | - | £60,000 |
| Profit-Sharing Ratio | 2 | 4 | 6 (Total) |
| Duke’s Share of Profit | £20,000 | - | £20,000 |
| John’s Share of Profit | - | £40,000 | £40,000 |
| Total Profit | £20,000 | £40,000 | £60,000 |
| Tax Liability | Individual Tax | Individual Tax | - |
| Bank Account Used | Joint Account | Joint Account | Joint Account |
- Profit Allocation: The net earnings of £60,000 are divided according to the profit-sharing ratio of 2:4 (Duke: John), resulting in £20,000 for Duke and £40,000 for John.
- Tax Filing: Duke and John are responsible for reporting their individual shares of income for tax purposes. Each will need to file their taxes separately despite using a joint bank account.
- MTD Software: The profit-sharing and income allocation can be easily managed using MTD-compatible software, ensuring that the calculations and submissions are accurate.
In these cases, the calculation is easy and usually done using MTD software. But real-life scenarios may be tricky when your accountant or tax adviser comes into play.
MTD for Private Landlords
MTD for Private Landlords applies if your income exceeds £50,000 as of now, which is subject to change in future. Private landlords might be slightly different since your property income is computed for tax as your other non-saving income. Calculating your tax liability is performed considering it as your income tax, which has a higher percentage rate than corporation tax, which fairly has a lower charging rate than your income tax.
MTD has also been specially developed for you since it will make income tax self-assessment easier for you and HMRC. The legal obligations might be a benefit as they are less than a corporate business.
Tailored advice for Private (Non-Corporate) Landlords
- Know Where You Stand: You must follow up with MTD only if you have property income exceeding £10,000, which connects u with quarterly reporting responsibilities and using HMRC-approved software.
- Separate Records for Separate Properties: Make sure not to mix up any expense or income for your properties. It makes it more clear for you and HMRC.
- Lookup All Allowable Deductions: Deducting expenses from your income properly can prevent you from paying higher taxes and may have different and simpler rules to follow.
- Recheck Your Income & Expenses: Overstating your expenses and understating your income can both bring you trouble and penalties
- Timely Payments: Provide proper and updated reports about your transactions to HMRC. Continuous delays may lead to higher fines and penalties.
Strategies for Success: The Most Tax-Efficient Way to Be a landlord
Own Properties Through a Limited Company
Owning properties through a limited liability company offers several tax advantages:
- Corporation Tax Benefits: As a company owner, you will pay corporation tax on your profits, which is generally lower than income tax rates applied to individual landlords.
- Mortgage Interest Deductions: Private landlords are restricted from deducting mortgage interest, but corporate landlords can claim full deductions on mortgage interest payments.
- Dividend Tax Benefits: Profits distributed as dividends from a company are subject to a lower tax rate compared to personal income tax.
- Ease of Transfer & Inheritance Planning: Transferring shares in a company or implementing inheritance tax planning is generally easier and more tax-efficient than transferring property ownership directly.
Maximise Deductions & Allowances
Ensure you are utilising all available tax deductions and allowances to reduce your taxable income. Common allowable expenses for landlords include:
- Repairs and maintenance costs
- Capital allowances for plant and machinery
- Travel expenses related to property management
- Eco-friendly investments, such as energy-efficient appliances or sustainable improvements, which often qualify for additional allowances or deductions.
Utilise Tax Reliefs
Certain tax reliefs can significantly reduce your tax liability:
- Rent a Room Scheme: If you rent a room in your primary residence, you may be eligible for tax relief up to £7,500 per year under the Rent a Room Scheme. This relief applies to income earned from renting out a furnished room in your home.
Capital Gains Tax (CGT) & Selling a Property
When selling a property, you may be subject to Capital Gains Tax (CGT). However, there are certain exceptions:
- Selling through a Company: If the property is owned through a limited company, the sale is subject to corporate tax rather than income tax, which is typically lower.
- Private Residence Relief: If you are selling your primary residence, you may qualify for Private Residence Relief, which can significantly reduce or eliminate CGT liability on the sale of the property.
Distribute Ownership Strategically
Consider transferring ownership of property to family members, such as your spouse or children under 18 years of age. By doing so, you can take advantage of their unused tax allowances, reducing the overall tax liability on your rental income. Be mindful of the legal and financial implications of transferring property to family members.
Consult a Professional
To ensure that you are making the most of your tax strategy, it is advisable to consult a qualified accountant or tax adviser. They can help you navigate complex tax rules, identify additional deductions, and tailor your tax strategy to your specific circumstances.
Leveraging Making Tax Digital
- Accuracy & Efficiency: MTD software for landlords reduces the likelihood of errors by automating tax calculations and providing helpful suggestions for deductions and tax planning.
- Data Visualisation: The software allows you to view your financial data in graphs and charts, making it easier to understand your tax position and plan effectively.
- Tax Differentiation: MTD tools can help you differentiate between income generated as a private landlord and income generated through a limited company, ensuring that you are paying the correct tax.
By combining these strategies with MTD for landlords, you can streamline your tax management, reduce the risk of errors, and make more informed decisions to minimise your tax burden and maximise profitability in your property investment business.
Conclusion
For now, it may seem new and inconvenient for us all to adapt to the latest changes brought by Making Tax Digital for landlords. For example, giving quarterly updates to HMRC instead of annually might be time-consuming and seem like an extra effort and expense. And not just quarterly reports to make but also a whole new MTD software to learn about, which might be more of a struggle for some of us.
However, it will make tax compliance easier for all of us. It will make taxes more transparent, accurate and timely for everyone. Procrastination will be reduced since HMRC has also brought penalties into the picture.
There will always be HMRC resources and accountancy professionals to help you comply with all the rules and regulations of HMRC while using the allowances and benefits it offers. Lastly, consulting an agent before using any software that supports MTD would be a better approach.
Additional Resources
- Extension of Making Tax Digital: Extension of Making Tax Digital for Income Tax Self-Assessment
- MTD for Commercial Landlords: Making Tax Digital for Commercial Landlords
- MTD for Income Tax timeline: Making Tax Digital for Income Tax timeline