Making Tax Digital (MTD) is set to become the norm for tax filing in the UK. However, many are quite confused about what MTD is and how one can comply with this digital tax system.
This comprehensive guide addresses the most frequently asked questions about MTD for Income Tax, specifically tailored for landlords, property investors, and those managing rental portfolios. We'll explore the practical implications, compliance requirements, and how modern property management software, such as Rentalbux, helps in this transition.
Understanding MTD for Income Tax
MTD for Income Tax is HMRC's digital tax system, which requires eligible taxpayers to maintain digital records, submit quarterly updates, and final declarations on their income and expenses. For landlords, this means tracking rental income, allowable expenses, and other property-related transactions throughout the year using MTD-compatible software.
The aim is to make tax administration more efficient and reduce errors by capturing information in real-time rather than relying on annual retrospective submissions.
Rentalbux Dashboard Overview
RentalBux, provides landlords with comprehensive dashboards that track key metrics, including total revenue, property values, and portfolio performance, essential data points that align with MTD requirements. When does a landlord need to register for MTD for Income Tax?
MTD applicability depends on when the qualifying income (see below) threshold is first exceeded:
- From April 2026: if your qualifying income is over £50,000 in the 2024–25 tax return.
- From April 2027: if your qualifying income is over £30,000 in the 2025–26 tax return.
- From April 2028: if your qualifying income is over £20,000 in the 2026–27 tax return.
What this actually means: If you're earning £45,000 in rental income right now, you might think you're safe until 2027. But if your income jumps to £52,000 in the 2024-25 tax year, you'll need to join MTD from April 2026.
What are the main requirements of MTD for Income Tax?
MTD for Income Tax introduces three core requirements for eligible taxpayers:
- Digital Record-Keeping: All business and property transaction records must be maintained digitally using HMRC-approved software
- Quarterly Submissions: Income and expense summaries must be submitted to HMRC every quarter
- Final Declaration: An annual final declaration must be made by 31 January following the end of the tax year
Can people with rental income join MTD voluntarily before the deadline?
Yes, landlords can voluntarily join MTD for Income Tax from April 2024, even if their rental income is below the £50,000 threshold. Here's our honest assessment:
Join early if:
- You're terrible at keeping records and need the discipline of quarterly deadlines
- Your rental income is growing and you'll be mandatory soon anyway
- You want to test systems while there's less pressure
- You're considering expanding your portfolio significantly
Wait if:
- You're comfortable with your current systems and they're working well
- You're close to retirement or considering selling properties
- You have other major business changes happening (new partnerships, company structures)
- Your income is stable and well below the thresholds
- Testing systems and processes before mandatory compliance
How can rental income be checked against the MTD thresholds?
Your "qualifying income" includes more than just rent payments:
- Monthly or weekly rent (obviously)
- Service charges paid by tenants
- Insurance payouts for property damage
- Premiums for granting leases
- Income from furnished holiday lettings
- Even late payment fees if you charge them
The £50,000 threshold is in gross income – before you deduct mortgage interest, repairs, management fees, or anything else. This catches many landlords off guard.
Real example: You collect £4,000 monthly rent (£48,000/year) plus £500 quarterly service charges (£2,000/year). Your qualifying income is £50,000, so you'd be required to join MTD from April 2026.
What exemptions or special rules apply to jointly owned property?
For jointly owned properties, each owner's share of the gross rental income is calculated separately against the £50,000 threshold. For example, if a property generates £70,000 in annual rental income and is owned 50/50 by two people, each owner will have £35,000 in rental income and would not be subject to MTD requirements based solely on this property.
However, if one joint owner has additional rental properties or other qualifying income that brings their total above £50,000, they must comply with MTD requirements for all their qualifying income sources from April 2026.
Digital Record-Keeping Requirements
MTD requires comprehensive digital records of all property-related income and expenses. Essential records include:
Income Records:
- Rental receipts and payment dates
- Service charge income
- Insurance claim receipts
- Any other property-related income
Expense Records:
- Mortgage interest payments
- Repairs and maintenance costs
- Insurance premiums
- Management fees and letting agent charges
- Legal and professional fees
- Travel expenses for property management
MTD Ledger Code Structure
Our software automatically categorises income and expenses according to HMRC's required MTD reporting categories, reducing errors and ensuring your submissions meet compliance requirements.
What receipts or evidence need to be stored, and for how long?
Digital records must be supported by appropriate evidence, but MTD doesn't specify the exact format. Acceptable evidence includes:
- Digital copies of invoices and receipts
- Bank statements showing payments
- Contracts and agreements
- Insurance policies and renewal notices
Records must be retained for at least 5 years after the 31 January submission deadline for the relevant tax year. The records must be readily accessible and in a format that can be provided to HMRC if requested.
How are mid-year ownership or income changes handled?
MTD requires ongoing record-keeping, so any changes in ownership, rental amounts, or property acquisitions/disposals must be reflected in the digital records as they occur.
For property acquisitions or disposals, the income and expenses should be apportioned to reflect the actual ownership period. This ensures that quarterly submissions accurately reflect the landlord's position at the end of each reporting period.
How are rental losses reported under MTD?
Rental losses continue to be reported under MTD, following the same principles as the current Self-Assessment system. Losses can typically be:
- Carried forward against future rental profits
- Set against other income in certain circumstances
The quarterly updates will show the running position throughout the year, with the final declaration confirming the annual loss position and any carry-forward amounts.
Quarterly Updates and Deadlines
Quarterly submissions require landlords to provide HMRC with summaries of their income and expenses for each three-month period. There will be four quarterly updates of income and expenses for all UK properties combined and four quarterly updated for all overseas properties combined.
Tax submission
Rentalbux streamlines the quarterly submission process by automatically compiling digital records into the required HMRC format, allowing landlords to submit their quarterly updates with confidence and efficiency.
When are the quarterly updates due under MTD?
The quarterly periods align with the tax year. However, you have the option to choose a calendar period if that aligns with your accounting period, although the submission deadline remains the same for both periods.
Can an accountant or tax agent make submissions on behalf of a landlord?
Yes, authorised agents can make MTD submissions on behalf of their clients. The landlord must:
- Authorise the agent through HMRC's online services
- Ensure the agent has access to the digital records
- Maintain responsibility for the accuracy of submitted information
We recommend working with MTD-experienced accountants or tax advisers to ensure compliance while reducing your administrative burden.
By clicking the authorise our software button, you would be directed to the HMRC website, where you can authorise us as an agent to act on your behalf, as shown in the figure.
Final Declaration
Under MTD, the end-of-year process involves "adjusting your self-employment and property income" rather than submitting a traditional Self-Assessment return. This is referred to as the MTD final declaration. The process allows landlords to:
- Review and adjust the cumulative quarterly submissions made throughout the year
- Include any end-of-year adjustments not captured in quarterly updates
- Calculate and claim capital allowances and other annual reliefs
- Finalise the tax calculation for the year
- Submit any additional information required for the tax year
The key difference between the MTD final declaration and quarterly updates is that this builds upon the quarterly submissions already made, rather than starting from scratch with an annual return.
When is the annual final declaration due?
The final declaration must be submitted by 31 January following the end of the tax year, maintaining the same deadline as the current Self-Assessment system. For example, the final declaration for the 2026-27 tax year would be due by 31 January 2028.
Does the final declaration replace the Self-Assessment tax return completely?
For landlords whose only qualifying income is rental property subject to MTD, the final declaration effectively replaces the traditional Self-Assessment return for that income source. However, landlords with other non-MTD income sources (such as employment income, dividends, or overseas property income) will still need to complete a Self-Assessment return that includes these other income sources alongside their MTD-reported rental income.
What information can be adjusted at the end of the tax year?
Final adjustments may include:
- Corrections to income or expenses reported in quarterly updates
- Capital allowances calculations that couldn't be determined during the year
- Rental losses carried forward from previous years or to future years
- Property tax reliefs and allowances
- Apportionments for partial-year ownership changes
- Any other adjustments needed to accurately reflect the year's position
Compliance and Penalties
HMRC uses a points-based system for late submissions and a separate system for late payments. The aim is to be fairer: occasional mistakes won't immediately trigger fines, but repeated failures will.
How do late submission penalties work under MTD ?
- Each missed deadline (quarterly update or final declaration) earns 1 penalty point.
- Once you reach the threshold, you get an automatic £200 fine.
- Every further missed deadline after the threshold adds another £200 fine.
Example:
John owns two rental houses in Leeds.
John is away on holiday and forgets to submit his first quarterly update. He gets his first penalty point. The next quarter, he is busy with a boiler replacement and misses again. That's two points. By the third quarter, he still hasn't caught up, bringing him to three points. When the fourth update is missed, he reaches four points, the threshold for quarterly submissions. HMRC then issues a £200 fine.
If John slips up once more in the next tax year and misses another quarterly update, he doesn't just get a point; he's fined another £200 immediately.
Do penalty points expire? How do penalty points reset after a fine?
Yes, if you don't reach the penalty threshold, points expire automatically after 2 years.
If you've already been fined, points only reset to zero when:
- All outstanding submissions from the past 24 months are filed, and
- You stay fully compliant for a set period:
Example:
In the earlier example, John defaults on four quarterly submissions, resulting in a fine. Hence, the clock doesn't reset automatically. To wipe the slate clean, he must first file all his missing updates from the past two years. Then, he must remain fully compliant for 12 months, as his obligations are quarterly. Only after that full year of on-time submissions will HMRC reset his points back to zero.
Are there penalties for late payment of rental tax?
Yes, late payment penalties are separate from submission penalties. HMRC also charges daily interest on unpaid tax.
- 0–15 days late: No penalty, but interest accrues from day 1.
- 16–30 days late: 2% penalty on the outstanding tax.
- 31+ days late: Another 2% (total 4%) + daily interest until paid.
Example:
Since John was already behind on his quarterly updates, he also missed the deadline for paying his rental tax. For the 2026–27 tax year, John's liability came to £20,000. But because he didn't keep up with his submissions, he was late in finalising his figures and ultimately missed the payment deadline.
From day 1, HMRC began charging daily interest on the unpaid £20,000.
By day 20, John still hadn't paid. A 2% penalty (2% of 20000= £400) was added.
By day 40, the bill was still outstanding, so another 2% penalty (£400) was applied. His total late payment penalties now stood at £800, in addition to the accumulating interest.
Special Situations and Tax Planning
Let us take a look at how MTD applies to landlords with multiple or overseas properties:
Multiple UK Properties: All UK rental properties are aggregated for MTD purposes. Landlords must maintain digital records for all properties and include all rental income and expenses in their quarterly submissions.
Overseas Properties: For UK tax residents, qualifying income includes both UK and foreign property income. This means that overseas rental properties are included in MTD requirements if the total qualifying income (UK and foreign property combined) exceeds the threshold. Foreign property income must be maintained digitally and included in quarterly submissions alongside UK property income.
Non-UK Tax Residents: For non-UK tax residents, only UK property income counts towards qualifying income, meaning MTD requirements would only apply to their UK rental properties.
How does it interact with property tax reliefs such as capital allowances?
Capital allowances and other annual reliefs are typically calculated and claimed through the final declaration rather than quarterly updates. This includes:
- Annual investment allowance claims
- Writing down allowances on plant and machinery
- Structures and buildings allowances
- Any first-year allowances
What impact will MTD have on tax planning and cash flow management?
MTD provides landlords with more regular insight into their tax position, enabling:
- Better cash flow planning through quarterly liability estimates
- Earlier identification of tax planning opportunities
- More timely decision-making about property acquisitions or improvements
- Improved budgeting for tax payments
Despite the positive impact, it is important to note that MTD requires more consistent record-keeping and may reduce flexibility for end-of-year tax planning strategies. But with proper planning and guidance, success is sure to follow suit.