Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) comes into effect on April 6th, 2024.
MTD is part of the Government’s 10-year strategy to bring the tax system up to date by moving it into the digital age. The changes mean that landlords, and all self-employed businesses earning £10k or more, will need to use compatible software to keep records, make submissions, and remain compliant. Changes such as this, however, bring with them a number of questions.
We’ll answer those today.
Which landlords will be affected by MTD for Income Tax?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will affect all landlords whose combined income from their property and/or business ventures is calculated at £10,000 or more a year.
The new scheme will replace the current Self Assessment tax return and landlords will be required to use compatible software in order to keep their tax files up to date. However, for landlords registered as Limited Companies, limited company accounts and corporation tax will continue to be sent to Companies House and HMRC as normal.
For landlords earning between £1,000 and £10,000 per annum, Self Assessment will continue to be the preferred filing method for tax returns.
What landlords need to do to prepare for Making Tax Digital
The main decision to be made is how you choose to keep your records.
Landlords moving over to MTD are pretty much restricted to two methods: move entirely to MTD-compatible software or use a combination of bridging software (to file updates and returns) and spreadsheets. The former will handle everything for you, including presenting your figures in a format that is acceptable to HMRC when the time comes to submit your tax return. The bridging software/spreadsheet combination is a much more hands-on affair and should be used with caution.
Whichever avenue you eventually decide to take, the time to start considering your options is now, if you haven’t done so already.
What will MTD for landlords look like in action
From 6 April 2024, landlords will need to:
- Create and store digital records for each of their business transactions
- Send updates of the totals of their business income and expenses every 3 months
- Confirm end-of-period statements
Naturally, landlords will also need to submit their final declaration as they ordinarily would have done via their Self Assessment tax return. Under the new Making Tax Digital for Income Tax Self Assessment rules, this will done either via their compatible software package of choice or via their HMRC online services account.
There will be, however, an additional step known as an end of period statement (EOPS). The reason for an end of period statement (EOPS) is to give landlords and business owners an opportunity to:
- Confirm the quarterly updates that have been sent are correct;
- Add details regarding any tax relief or relevant personal income you may have received during the tax year;
- Make other necessary adjustments before submitting your final declaration.
As before when using Self Assessment to file returns online, the deadline date will be January 31st.
What dates will the quarterly updates be due by?
The introduction of quarterly updates will apply to everyone switching over to the Making Tax Digital for Income Tax Self Assessment rules.
The quarterly submission deadlines dates are as follows:
- 5th August
- 5th November
- 5th February
- 5th May
Failure to submit your updates may result in a penalty being issued.
I own multiple properties, how does that affect Making Tax Digital?
Making Tax Digital for Income Tax Self Assessment rules apply to your total gross income, so the amount of properties you own or have invested in is irrelevant.
One thing to bear in mind here, however, is your choice of software. Some software providers will enable you to track multiple properties individually and allow you to assign income and expenses to each. This could be beneficial for landlords with complex portfolios.
Think about how your business operates before signing up for a given software package.
What about if I own overseas property?
If you are a UK resident who pays tax to HMRC, Making Tax Digital for Income Tax Self Assessment rules apply regardless of whether your income is gained from domestic or overseas property investments.
What happens if you fail to register for Making Tax Digital?
As one would expect, it won’t end well.
Failing to register for, and comply with, the new way of submitting your tax return will ultimately result in a penalty becoming due on your account. Under the new system, taxpayers will accrue points for late submissions and non-compliance. Once a threshold is hit, a penalty will be issued.
For more information on penalties and their thresholds, visit gov.uk.
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