Do Landlords Need to Follow Making Tax Digital Rules?

Making Tax Digital is a government digitalisation programme that will require unincorporated landlords whose qualifying income is over the relevant threshold. From April 2026, the UK government is rolling out Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). Landlords and those with income from self-employment or property that reach certain thresholds will be impacted first. The aim is to digitalise record-keeping and reporting, spread the workload quarterly, and minimise errors. However, failing to adapt could result in non-compliance and penalties.

Who is Affected & When?

Income Thresholds & Phased Roll-out

MTD for ITSA is being phased in based on gross income:

• From 6 April 2026 – Landlords and sole traders with £50,000 + total income from property or self-employment.
• From 6 April 2027 – Threshold lowers to £30,000
• From 2028 – Applies to those with £20,000

These thresholds are calculated on gross income and not the profit, so someone earning £30,000 gross from rent qualifies regardless of expenses.

Retained by Requirement

Once a landlord enters the Making Tax Digital regime, landlords stay in the system even if income later falls below £50,000 unless income remains below the threshold for three consecutive tax years.

Who is Exempt?

Some landlords may qualify for exemptions:

• Limited Companies – Landlords owning a rental property through a limited company do not need to comply with MTD for ITSA, though they might need to comply with Making Tax Digital if they are VAT registered.
• Real Estate Investment Trusts (REITs) – Income from REIT shares is treated as dividends, not rental income, so it does not fall under MTD for ITSA.
• Income below Threshold – Landlords with income below £50,000 per year will not be required to comply with MTD. Also, if rental income is covered by a property allowance of £1000, landlords are exempt from MTD.
• Digital Exclusion Exemptions – Landlords are exempt from MTD if they cannot use digital tools due to health conditions, age-related difficulties, lack of internet access or religious beliefs.

For exemption, applications must be made to HMRC since they are not automatic.

 What Will Change?

• Digital Record-Keeping – Landlords will be required to maintain digital records of all income and expenses using approved software. Traditional paper logs or spreadsheets alone won’t suffice unless integrated into compatible systems.
• Quarterly Updates – Instead of filing just one Self-Assessment return at the end of the year, landlords must submit four quarterly updates summarising income and expenses; for example:
  • Quarter 1: April-July, due 5 August
  • Quarter 2: July-October, due 5 November
  • Quarter 3: October-January, due 5 February
  • Quarter 4: January-April, due 5 May

Landlords may align updates to standard tax quarters or calendar quarters, based on preference.

• Final Declaration – At the end of the tax year, landlords submit a Final Declaration, which parallels the Self-Assessment return. This reconciles digital records, claims reliefs, includes other income and verifies accuracy.

• No Change in Deadlines for Tax Payments – Making Tax Digital only changes how you report, not when or how much you pay. Payment deadlines remain unchanged.

HMRC Support & Voluntary Sign-up

As the rollout of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) approaches, HMRC has introduced support mechanisms and a voluntary sign-up programme to ease the transition particularly for landlords and sole traders. These initiatives provide an opportunity to become familiar with the system before it becomes mandatory.

The Voluntary Pilot Programme

HMRC has launched a voluntary pilot programme that allows eligible landlords and self-employed individuals to begin using the Making Tax Digital system ahead of the mandatory deadline. This pilot is designed to test software integration, digital submissions, and HMRC’s back-end systems in real-world conditions.

The pilot is open on a limited basis and is expected to expand further from April 2025, giving early adopters more time to prepare and adapt.

Key Benefits of the Pilot:

• Hands-on learning experience with MTD-compatible software
• Early feedback from HMRC, including error checks and correction guidance
• Time to establish new workflows, reporting habits, and digital record-keeping
• Fewer surprises when the system becomes compulsory

Those who participate in the pilot will be submitting quarterly income and expense reports just like they would under the final system, providing invaluable preparation time.

Who Can Join the Pilot?

Currently, the pilot is limited to individuals who meet the following criteria:

• Are UK residents
• Are registered for Self-Assessment
• Have income from property or self-employment
• Use MTD-compatible software
• Have an accountant or agent enrolled with HMRC

More complex cases such as those with multiple income streams or jointly owned properties may not yet be eligible, but HMRC plans to expand eligibility over time.

 How to Join?

Landlords can join the pilot through two routes:

• Directly via HMRC by registering their Government Gateway account
• Through an accountant or tax agent if they are managing submissions on the landlord’s behalf

Accounting Practices: Challenges & Opportunities

• Increased Client Contact – Quarterly reporting fosters frequent interactions, advisory potential, and relationship-building, but also means more admin to manage.
• Staff Training Imperative – Everyone in your team must understand the Making Tax Digital timelines, software use, and troubleshooting; regular training ensures confidence.
• Workflow Optimisation – Accountants should implement automated workflows, clear milestones, and client communication plans to manage submissions efficiently.
• Advisory Services Expansion – With manual admin reduced, accountants can focus on value-added services; cashflow forecasting, tax planning and portfolio performance review.
• Differentiation through Technology – Early adoption and landlord-centric software allows firms to stand out, serve wider geographies, and market by showing digital first solutions.

Potential Benefits & Risks of MTD

Benefits for Landlords

Implementing Making Tax Digital offers a range of long-term advantages, especially for landlords managing multiple properties or looking to streamline their finances:

• Better Financial Oversight – Quarterly updates encourage regular reviews of income and expenses, helping landlords manage cash flow, plan for taxes and make informed business decisions throughout the year.
• Reduced Errors & Penalties – Digital submissions minimise manual mistakes and automatically calculate tax positions, reducing the likelihood of inaccuracies or late filings.
• Real-Time Data Access – Using cloud-based software means landlords can access up-to-date financial data anytime, improving responsiveness and decision making.

Risks & Challenges

• Initial Learning Curve – Moving from spreadsheets or manual tracking to compliance software may feel overwhelming, especially for older landlords or those without digital experience.
• Cost of Software & Setup – MTD-compatible platforms often involve monthly subscription fees. There may also be costs for accountant support or training sessions to get started.
•  More Frequent Deadlines – Quarterly updates add four new submission dates each year, increasing time pressure and the potential for missed filings or incomplete data entry.

Conclusion

Making Tax Digital is not just a tax update; it is a fundamental change in how landlords manage their financial records and interact with HMRC. By preparing early, choosing the right tools, and staying informed, landlords can transform what seems like a compliance challenge into a smarter, more efficient way to run their rental business.

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