Making Tax Digital (MDT) - A Landlord's Guide

Although many landlords will eventually be required to sign up, there are instances where one may be exempt.

Exclusions can be digital or automatic, temporary or permanent.

If someone doesn’t meet the qualifying income, they’re automatically exempt from MTD. These are those earning less than £20,000. The same applies to people who don’t have a National Insurance number.

An automatic exclusion will be permanent unless the situation changes.

Digital exclusions are for individuals whose circumstances hinder them from transitioning. This can be due to a disability, a long-term health issue, or a religious belief incompatible with digital devices.

In these cases, you’ll need to apply to be excluded and explain your situation to HMRC. A lack of internet access due to your location may also qualify for MTD exemption.

What Counts as Qualifying Income?

Qualifying income refers to an individual or business’s gross income from self-employment and/or property in a tax year before expenses and tax reliefs. 

For landlords, the following count towards your qualifying income:

• – Residential and commercial rental income
• – Tenant charges for extra services
• – Holiday lettings
• – But-to-let
• – Lease and reverse premiums
• – Sole trader income
• – Gross income from foreign properties
•  

Employment income, pensions, savings interest, income from a limited company, investment returns, capital gains from selling properties, and individual profit shares from standard businesses don’t count.

If you jointly own a rental property, only your share of the top-line income will count toward your MTD qualifying income. 

The HMRC will assess your gross income, but it’s good practice to check your turnover yourself. 

The authorities will evaluate you based on your previous self-assessment tax report from the previous year. If they find your gross income exceeds the relevant threshold, they will send a letter informing you of your eligibility.

Choosing Your Software For Making Tax Digital

HMRC doesn’t provide software to customers for MTD. That means you’re gonna have to decide which software you’ll use to comply.

You want software capable of creating digital records, sending regular updates to HMRC, and submitting tax returns.

There are different types of software available for these purposes, recognised by HM Revenue and Customs. Depending on your preferences, you can get one that creates records or one that connects your existing records.

You can also employ more than one product. There are paid and free versions, which makes it easier to find a solution that works for your specific needs and budget.

Deadlines and Penalties

The MTD introduces a point-based penalty system for late submissions. If you miss a deadline, you get one penalty point. Accumulating 4 penalty points through repeated violations can incur a £200 penalty.

Every missed deadline after incurring a penalty will cost £200. Penalties for late payments depend on the amount you owe and how long it took you to settle it.

Bottom Line: How Landlords Can Prepare For MTD

Even if your MTD obligations start a year or two from now, preparing early will help your transition.

You want to review your most recent self-employment and property tax income to determine which tax year you need to sign up for. Migrating your records sooner can help you save valuable time.

Speak with your accountant to help you choose and set up your bookkeeping software early and avoid problems down the line. 

Remember, keeping track of your quarterly updates closely will save you from headaches and unnecessary penalties!