Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is due to come into effect in April 2024. Originally planned for 2023, the date was put back a year as a response to the pandemic, giving those affected another year to become MTD compliant.
2024 may seem like a long time away but time really does fly in business and landlord accounting is known for being complex and intricate so it’s important that landlords start thinking about making the move over to MTD-compliant cloud bookkeeping software now.
Here at Warr & Co, we have various options available to suit each landlord’s individual needs and we’ve partnered up with several cloud bookkeeping solutions to give you great discounts and free trials. In this blog we’re discussing some of the most frequently asked questions about MTD for landlords, helping you to better understand what you’ll need to do to become compliant in the not-so-distant future!
What Is MTD? And What Does MTD For ITSA Mean?
MTD was introduced as a way of making tax returns more efficient and accurate, enabling businesses to better avoid preventable mistakes through storing their accounting records digitally via MTD-compliant software. MTD has already been rolled out to VAT-registered businesses, who are now required to submit their VAT returns online, whilst MTD for ITSA (which is the requirement for businesses, individuals and landlords who have a total gross income of over £10,000 a year to submit their Income Tax online via MTD-approved software) will come into play in April 2024.
What Do Landlords Need To Do To Be MTD Compliant?
First things first, you need to start having a think about what type of MTD-approved software you’d like to use. We’ve teamed up with some of the leading MTD-approved cloud bookkeeping solutions to enable you to try out different softwares and find the most appropriate package for your specific needs. Our experienced accountants are on hand to guide you through each software and offer recommendations based on your requirements. What’s more, we’re also able to offer our clients free trials and we occasionally offer clients discounted licences* – you can find out more information via our website. Be sure to also take a look at our free FreeAgent webinar which will give you a taster on how this award-winning software works.
*discounted licences are available on a first-come-first-served basis, and may not be available at your time of enquiry
You’ll need to have your chosen MTD-approved software up and running before you can register for MTD for ITSA. (It’s really important to note that you need to sign up for MTD for ITSA – it doesn’t matter if you’re already registered for MTD for VAT, your registration will not be automatically transferred across. This is a step that’s often ignored until the last minute but by then it’s too late! You’ll need to sign up before the deadline of the 6th April 2024.) Your accountant can register on your behalf if you’d prefer. Get in touch to find out more.
The Government is currently looking for eligible individuals to sign up now voluntarily, in order to help test the process and ensure that it runs smoothly before it officially comes into effect. If you’re eligible to take part, it’s definitely worth considering as it will give you plenty of time to get used to the software and to understand the requirements. You can find out more about voluntarily signing up here.
Are There Any Free MTD-Compliant Softwares?
Unfortunately not. There were talks of the Government creating one but it doesn’t sound like it’s likely to be finalised. Although it’s understandably frustrating that individuals are expected to purchase cloud bookkeeping software, it really will earn its keep by proving cost-effective in the long run! It will not only save you a huge amount of time, but it also helps to improve efficiency and accuracy by removing potential human errors. Once you’ve made the switch, you won’t want to go back to your old processes – that’s for sure!
For more information about the approved cloud bookkeeping software you could use, take a look at our software recommendations. Our free software trials give you a great opportunity to test out several software packages to help you find the one that suits your individual needs the most. Once you’re ready to commit to your software of choice, ask us about the limited number of discounted licences we have available.
Will I Still Need To Submit A Self Assessment Tax Return?
No. Once you’ve moved over to MTD for ITSA, you won’t need to file a Self Assessment Tax Return
Instead of filing a Self Assessment you will be required to:
- Send updates to HMRC every quarter
- Submit an End of Period Statement (EOPS) to correct any errors or items missed out of those returns, this will normally be dealt with by your accountant after the end of the tax year
- Filing the EOPS alone won’t always finalise your tax affairs for any one tax year. Instead, you will also need to submit a final declaration or crystallisation. This will bring together all business and personal information needed to determine your final tax liability, including information from the EOPS and information on non-MTD sources of income like dividends and interest.
This will be due by the normal self-assessment deadline of 31 January following the relevant tax year.
What Is ‘Pay As You Go’ Tax?
Because you’ll be reporting to HMRC every few months, you’ll have a much greater insight into your upcoming tax bill, meaning you can manage your money and budget for your tax bill easier.
In addition to this, it’s also looking likely that the Government will be putting a ‘pay as you go’ initiative in place. If this goes ahead, this will mean that you’ll be able to make regular voluntary payments towards your tax bill instead of one large lump sum at the end of the tax year! More information regarding this is likely to be released shortly.
Do I Need An Account Per Property Or Can I Use One Cloud Bookkeeping Account For All Of My Properties?
You’ll be required to use one account for all of your properties so that you can report your earnings as a whole. The £10,000 threshold is per taxpayer – not per property!
Who Needs To Keep Digital Records For Self Assessment?
Under the requirements of MTD for ITSA, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically.
We understand that separate quarterly updates will be required for each trade or property business carried on by an individual.
All businesses within MTD for ITSA will have to provide quarterly updates of their income and expenses for the following periods, by the following deadlines, regardless of their accounting period end.
|Quarterly update 1||6 April to 5 July||5 August|
|Quarterly update 2||6 July to 5 October||5 November|
|Quarterly update 3||6 October to 5 January||5 February|
|Quarterly update 4||6 January to 5 April||5 May|
Alternatively, businesses can make a ‘calendar quarter election’ which allows them to draw up quarterly updates to the end of the previous month. Where this election is made, the quarterly updates will be as follows:
|Quarterly update 1||1 April to 30 June||5 August|
|Quarterly update 2||1 July to 30 September||5 November|
|Quarterly update 3||1 October to 31 December||5 February|
|Quarterly update 4||1 January to 31 March||5 May|
What happens if you get income from a partnership?
General partnerships that earn over £10,000 a year must sign up for Making Tax Digital for Income Tax by 6 April 2025. These partnerships only have individuals as partners and all partners are jointly liable without limits for partnership debt. Please note if you own a property with another person this does not always mean you are in partnership with them – HMRC’s guidance in this area is not completely clear yet and we are awaiting further information. We will release an update once the guidance is more clear.
What About Overseas Property That I Rent Out?
Any overseas properties that you earn over £10,000 income on per year will still be subject to MTD requirements. However, if your income is also taxed in the property’s country, you may find that you’re able to claim double tax relief.
What If I Live Overseas But Rent Out A Property In The UK?
The same as above applies – if your earnings are over £10,000 then you’ll still be required to follow MTD requirements.
Can My Accountant Handle My MTD Bookkeeping?
To a certain extent – yes. Your accountant will be able to run certain reports for you, manage parts of the bookkeeping process and advise on ways you can improve your tax efficiency, but it will still require some input from you. Please contact us for more information; we’ll provide you with a full breakdown of what we’ll take care of for you and what your necessary requirements will be.
What Happens If I Don’t Comply With MTD By April 2024?
Penalties will be in place for missed submission deadlines, as well as for failing to pay a tax bill on time. Under a new ‘points’ system – similar to that of speeding fines – those who miss submission deadlines will be given a ‘point’. After a certain number of points are accrued (this can depend on how often your business is required to provide updates), a £200 fine will be given. If you fail to pay your tax bill on time, you’ll be fined a percentage of your tax bill which will continue to increase the longer that the payment is overdue. You can find out more about MTD penalties via the Government website.
If you’re ready to get started with MTD, the first thing you’ll need to do is decide on which MTD-approved software you’d like to use. Let us help make that decision a little easier for you – drop us an email and we’ll answer any questions or concerns you have, we’ll provide tailored recommendations based on your portfolio, and we’ll provide ongoing support as you get to grips with your chosen software package. Once your software is up and running, you can then sign up for MTD for ITSA.