Making Tax Digital affects one in six UK landlords

Making Tax Digital affects one in six UK landlords

A recent study reveals that 17.7% of UK landlords currently meet the income threshold requiring them to comply with Making Tax Digital for Income Tax (MTD), with thresholds set to lower in the coming years, expanding the scope significantly.

New research from Lendlord highlights that nearly one in six landlords have annual rental income exceeding £50,000, the current threshold for mandatory digital tax reporting under MTD. This requirement applies to individuals whose combined gross income from property and self-employment surpasses this figure before expenses. The next quarterly reporting deadline is approaching, signalling an important compliance milestone for affected landlords.

MTD thresholds and expanding landlord obligations

Currently, landlords with qualifying income above £50,000 must submit quarterly reports digitally to HMRC under the Making Tax Digital for Income Tax scheme. However, this threshold is set to drop to £30,000 from April 2027 and further to £20,000 from April 2028. This staged reduction will bring a much larger proportion of landlords into the MTD remit over the next two years.

The inclusion of combined gross income from both property rental and self-employment means that landlords with rental income below these thresholds may still be required to comply if their total qualifying income exceeds the limits. This broad definition increases the number of landlords who must prepare for digital record-keeping and reporting.

Lendlord’s chief executive, Aviram Shahar, emphasised the growing importance of digital reporting as a core part of managing a property business. He noted that maintaining organised records throughout the year, including rental income, expenses, and bank transactions, can ease the burden of quarterly reporting and provide landlords with clearer insights into their portfolio’s financial performance.

Background: Making Tax Digital’s impact on landlords

Making Tax Digital was introduced by HMRC to modernise the tax system, requiring certain taxpayers to keep digital records and submit tax information using compatible software. Initially focused on VAT-registered businesses, the scheme has progressively expanded to include income tax for self-employed individuals and landlords.

The phased lowering of income thresholds reflects HMRC’s intention to widen the adoption of digital tax compliance, aiming to improve accuracy and reduce errors in tax reporting. For landlords, this means adapting to a more structured approach to financial record-keeping, often necessitating investment in accounting software or professional advice.

While the initial threshold of £50,000 targeted larger landlords, the upcoming reductions will affect many small to medium-sized landlords who previously fell outside the MTD scope. This shift aligns with broader government efforts to digitise tax administration and improve compliance.

Practical implications for landlords and agents

For landlords currently above the £50,000 threshold, the challenge is to ensure that quarterly digital submissions are accurate and timely. This requires integrating rental income and expenses into digital accounting systems, which may involve a learning curve and additional administrative effort.

Landlords approaching the £30,000 and £20,000 thresholds in the next two years should begin preparing for compliance by reviewing their record-keeping practices. This includes consolidating income sources, tracking allowable expenses meticulously, and considering software solutions that facilitate MTD reporting.

Letting agents managing multiple landlords’ portfolios will also need to adapt their services to support clients with MTD obligations. This could involve advising on suitable digital tools, assisting with data organisation, and ensuring that financial records are maintained in a compliant manner.

Areas of uncertainty and what to watch

While the broad framework of MTD for Income Tax is established, some details remain unclear for landlords. For example, the exact interpretation of combined income from property and self-employment may require clarification in complex cases, such as landlords with diverse income streams.

HMRC’s guidance on acceptable software and the process for quarterly submissions continues to evolve, and landlords should monitor official updates closely. There is also uncertainty about enforcement and penalties for non-compliance, particularly as the thresholds lower and more landlords become subject to the rules.

Landlords should be aware that transitional arrangements or exemptions may be available in certain circumstances, but these are limited. Staying informed about changes and seeking professional advice where necessary will be crucial to avoid compliance pitfalls.

Steps landlords should take now

• Review current rental income and combined self-employment income to assess if MTD thresholds apply now or will in the near future.
• Evaluate existing record-keeping processes and consider adopting digital accounting software compatible with MTD requirements.
• Organise financial records, including income, expenses, and bank transactions, to facilitate accurate quarterly reporting.
• Engage with letting agents or accountants to ensure support for MTD compliance and to clarify any uncertainties.
• Keep abreast of HMRC guidance and deadlines for upcoming quarterly submissions to avoid penalties.

Supporting landlords with Making Tax Digital compliance

Membership of The Landlord Association (TLA) offers access to practical compliance resources that can assist landlords in managing their Making Tax Digital obligations. TLA’s developing ORBIT platform, currently in BETA testing, aims to help landlords organise property and portfolio information, manage rental documentation, and record key financial data relevant to tax reporting.

ORBIT’s features under development include tools to consolidate income and expense records digitally, facilitating the preparation of quarterly submissions under MTD. Members can also access up-to-date compliance information and guidance tailored to the private rented sector, helping landlords stay informed of regulatory changes and best practices.

Exploring TLA membership can provide landlords and letting agents with ongoing support as MTD requirements expand, ensuring they are better equipped to meet their digital tax reporting duties efficiently.

Looking ahead, landlords should prioritise digital record-keeping and consider professional advice to navigate the evolving MTD landscape. Early preparation will ease the transition as thresholds lower and compliance becomes mandatory for a broader group of landlords.

Sources: Landlord Today