Making Tax Digital for Landlords: Key Changes and Obligations

One of the most significant changes for UK taxpayers since the introduction of self assessment in the year 1996/97, Making Tax Digital (MTD), is set to affect a large number of self-employed individuals and landlords, along with their accountants. Since the introduction of Making Tax Digital on 6 April 2019, the regime has seen different changes; the most notable is the introduction of Making Tax Digital for Income Tax Self Assessment on 6 April 2024. As a result of this change, individuals falling under Making Tax Digital for the ITSA regime will no longer be required to complete a self assessment tax return in the current SA100 form.

Key dates for Making Tax Digital implementation:

• From 6 April 2026 - Self-employed individuals and landlords with income above £50,000 must transition to digital record-keeping.
• From 6 April 2027 - Those with income between £20,000 and £50,000 are required to follow suit.

Under the current rule, landlords are only required to declare their income and expenses at the end of the year via self-assessment tax return and are not required to keep a digital record of their property income and expenses. However, the responsibilities of those affected by Making Tax Digital will likely be widened. Therefore, planning ahead of the change is advisable to avoid last-minute hassles. In the subsequent sections, we will explore the obligations of landlords under the Making Tax Digital regime.

Record Keeping obligations of landlords under Making Tax Digital

One of the key reasons behind the introduction of Making Tax Digital is to reduce errors and tax gaps by requiring digital record-keeping and real-time reporting. Therefore, landlords falling within Making Tax Digital must keep digital records of the following:

• Income sources like sales, takings, and fees,
• Expenses such as inventory costs, travel expenses, and office-related costs

For the purposes of Making Tax Digital, all properties within the UK are treated as a single ‘UK property business;’ therefore, landlords are not required to keep separate digital records for each property. Likewise, all properties outside the UK are treated as ‘foreign property business’ if they are located in the same country, and the records of income and expenses of foreign properties should be kept accordingly.

The time limit for retaining digital records under Making Tax Digital is the same as the Self-Assessment record-keeping requirement: five years after 31 January following the tax year to which the records relate.

Quarterly Reporting Obligations of Landlords Under MTD

In addition to digital record keeping, landlords bound by the MTD regime must submit quarterly updates to the records. As a result of the quarterly digital records updating obligation, the record-keeping must be completed before the quarterly deadline or prior to submitting the update. Landlords can choose to follow either the standard update period (aligned with the tax year) or the calendar update period (ending on the last day of the month). Regardless of the update period chosen, the deadlines for maintaining digital records are the same, as illustrated below:

After submitting the fourth quarterly update, the landlord’s Making Tax Digital -compatible software will display the income and expenses for the entire year, allowing for any necessary adjustments. These adjustments might include corrections to the figures, reclassification of transactions, or including any missed income or expenses. Once these adjustments are completed, the software will update the final business income. After the final business income is generated, the next step is to finalise the landlord’s income tax position.

To finalise the income tax position for a tax year, taxpayers must send details of any other income sources to HMRC and submit a final declaration confirming that the information provided is correct and complete and that their income tax position is finalised. This declaration can be made through MTD software. If the MTD software does not support the submission of income sources, the declaration can be made using the HMRC online services account.

What is Next for the Landlords?

Most of the UK landlords will likely be affected by Making Tax Digital from 6 April 2027, even if not a year before that. Landlords fulfilling certain criteria can opt to register for Making Tax Digital now and start keeping the records digitally. Those landlords who do not want to do so should at least understand the next steps once the Making Tax Digital becomes applicable to them.

A key step to complying with Making Tax Digital is to find compatible record-keeping software. The chosen software must be capable of maintaining business records in accordance with Making Tax Digital regulations, preparing and dispatching quarterly updates to HMRC's making tax digital, and finalising business income calculations and declarations at the end of the year.

Once landlords are happy with their software choice, they can proceed to sign up for the Making Tax Digital. While each software may have separate requirements to complete the signing up process, all software requests certain information, such as the primary details of the applicants, the start date of receiving property income, the accounting date or the year-end of the business, the name and address of properties, etc. 

Once the sign-up process is successful, landlords can start keeping digital records of their property income and expenses. Landlords can either do this themselves or appoint an agent to undertake it on their behalf.

Conclusion

Making Tax Digital for landlords marks a significant shift in the way property income is reported to HMRC. By 2027, many landlords will need to embrace digital record-keeping and quarterly reporting to comply with the new system.

Preparing early by selecting compatible software, understanding the record-keeping, and reporting requirements will help landlords navigate the transition smoothly and avoid potential penalties. As Making Tax Digital aims to improve tax accuracy, landlords should familiarize themselves with the upcoming changes and plan accordingly to ensure compliance.