Making Tax Digital awareness remains low among UK landlords and traders

Making Tax Digital awareness remains low among UK landlords and traders

A recent survey reveals that half of UK adults are unaware of the Making Tax Digital (MTD) initiative for Income Tax, despite its phased rollout affecting landlords and sole traders with qualifying income. Awareness and confidence in compliance remain limited as the scheme expands.

The second quarterly reporting deadline for Making Tax Digital for Income Tax passed recently, marking another milestone in the government’s shift towards digital tax reporting. This change affects landlords and sole traders who must now keep digital records and submit income and expense summaries to HMRC every three months rather than filing once annually. The requirement currently applies to those with income above £50,000, but thresholds will lower in the coming years, broadening the scope significantly.

According to a survey cited by Wolters Kluwer Tax & Accounting Europe, half of UK adults do not understand what MTD entails, with 31% having never heard of it and 19% aware but unclear on the details. Only 9% currently use MTD, while 13% are prepared to comply when required. This suggests many landlords and letting agents may be unprepared for the upcoming changes, which could impact tax compliance and administration within the private rented sector.

Details of Making Tax Digital and its phased implementation

Making Tax Digital represents the most significant reform in income tax reporting since the introduction of Self Assessment. Instead of a single annual tax return, taxpayers in scope must maintain digital records and submit quarterly updates to HMRC. This aims to improve accuracy, reduce errors, and streamline tax administration.

The scheme began mandating landlords and sole traders with income over £50,000 to comply from April 2026. The threshold will reduce to £30,000 in April 2027 and further to £20,000 in April 2028. This staged approach means many more landlords, including those with smaller portfolios, will soon be required to adopt digital record-keeping and quarterly reporting.

To ease the transition, those newly brought into scope in 2027 will benefit from a “soft landing” period during the 2027/28 tax year, where no penalty points will be issued for late quarterly updates. Similarly, those who joined in 2026 have a penalty-free period for late quarterly updates during 2026/27, although this does not apply to late annual tax returns.

Challenges and implications for landlords and letting agents

The survey highlights significant uncertainty and low confidence among taxpayers regarding MTD compliance. Over half of respondents are unsure if tax rule changes apply to them, and many doubt their ability to meet deadlines without reminders. Around 9% have missed tax deadlines, and 8% have incurred fines for late filing. Digital record-keeping, central to MTD, poses a particular challenge, with 38% lacking confidence in their ability to retrieve necessary records if requested by HMRC.

For landlords and letting agents, this uncertainty could translate into compliance risks and administrative burdens. The need to maintain accurate, accessible digital records every quarter requires robust systems and processes. Small portfolio landlords who previously managed tax affairs annually may find the new regime demanding, especially if they lack accounting support or digital tools tailored to MTD requirements.

Letting agents managing multiple landlords must also ensure their clients are informed and prepared. Agents may need to assist landlords in selecting appropriate software and maintaining compliant records. Accountants and tax advisers will play a crucial role in guiding landlords through the transition and ongoing compliance.

What landlords and agents should do now to prepare

With the scope of MTD expanding in the next two years, landlords and agents should assess their current tax reporting practices and readiness. Checking if income thresholds apply is a first step, followed by evaluating digital record-keeping capabilities. Choosing HMRC-recognised software or platforms that simplify quarterly submissions is advisable.

Engaging with accountants familiar with MTD can provide reassurance and help avoid penalties. Landlords should start maintaining digital records promptly, even if not yet mandated, to build good habits and ensure smooth compliance when required.

Agents should communicate with landlords about upcoming changes, offer guidance on record-keeping, and consider how their own systems support MTD compliance. Early preparation reduces the risk of last-minute issues and penalties.

Remaining uncertainties and future considerations

While the broad framework of MTD is established, some details remain unclear, particularly regarding the practicalities for smaller landlords and the integration of letting agent services with MTD software. The government’s approach to enforcement beyond the soft landing periods will also influence compliance behaviour.

Landlords should monitor official HMRC guidance for updates and clarifications. The evolving digital tax environment may introduce further requirements or adjustments, making ongoing attention essential.

Keeping your rental properties compliant with Making Tax Digital

TLA membership offers landlords and letting agents access to compliance resources that can help with the transition to Making Tax Digital. Members can explore practical information on digital record-keeping, tax deadlines, and selecting appropriate software solutions. TLA’s new property management and compliance platform, ORBIT, currently in BETA testing, is being developed to assist landlords and agents in organising property records and managing documentation, which can support MTD compliance.

ORBIT aims to provide tools for recording income and expenses, tracking key tax dates, and maintaining evidence of compliance activities. While still in testing, it represents a step towards simplifying the administrative demands of MTD. TLA members are encouraged to review their current tax processes and consider how membership resources and ORBIT access might support their preparations for the expanding MTD requirements.

Explore TLA membership and learn more about ORBIT BETA access to stay informed and organised as tax reporting obligations evolve.

The rollout of Making Tax Digital will continue to reshape tax administration for landlords and letting agents. Early awareness and preparation can mitigate risks and ease the transition to quarterly digital reporting.

Sources: Letting Agent Today