Less Than A Year Til 'Making Tax Digital'
We have been talking about the forthcoming introduction of 'Making Tax Digital' for 7 or 8 years now, and sadly, for most of us it is now less than 1 year away and everyone will have to change how they operate which will add more cost to your business. Are you ready?
And The Answer Is...
The simple answer to 'Are You Ready' is NO – as no one will know the exact solution that HMRC specifies until just before implementation. If it follows the same pattern as VAT, that is likely to be February next year – 2 months before implementation – and then there will be a delay while software providers conform and get approved, though you can assume that the major accounting packages such as Sage, QuickBooks and Xero will pass these tests as their business depends on it and they already do it for VAT.
A few points to flag:
- MTD (Making Tax Digital) is being brought in for income tax from April 2026. In its first year it will apply to individuals with qualifying income over £50k. From 2027 the threshold will be £30k and then £20k from 2028.
- Qualifying income is largely self-employment income (turnover, not profits) and property income (again, gross rentals before expenses): it will be interesting to see the impact on tradesman who for years have been perfecting the art of 'not appearing to earn enough to need to register for and charge VAT' when the threshold for digital disclosure and reporting has dropped to £20k gross income.
- But anyway, landlords and everyone else affected will be required to keep all accounting records digitally. A spreadsheet would do but….
- Submissions can only be completed by 'approved software'
- Each quarter you have just over a month to file a digital return to HMRC reporting the cumulative income and expenses for that tax year. This is "easily" done if you are using an approved accounting package to keep your books, but may involve bridging software if your records are in excel (see below for more on bridging software).
- You will no longer be able to use HMRC's self-assessment form but will need to file your end of year self-assessment through approved software.
Get planning! Most of the large software packaged providers say they are finalising development of software to deal with this reporting (not that it is fully defined yet), but the general message is to get ready for this change as soon as possible. I cannot see a way to meet this reporting with additional expense.
As an association, the PDPLA took ownership of the www.landlordmtd.com domain many years ago and we have been using it to keep those who subscribe up to date with options. For most new landlords who are learning how to manage their business, it probably makes sense to purchase one of the landlord property management packages or a generic one like Xero or Sage and use that to tailor and guide how you operate (obviously the generic ones will not tell you when to send a rent reminder or help in producing a Section 13 or 21 notice but…).
However, for those landlords who have a system which they have grown over a number of years and for whom it works, you have 2 choices. Either change everything and switch to one of the packages out there (and incur the associated cost) or use bridging software.
If you missed our explanation of what bridging software is and how it might help at our meeting last January, the simple definition is that you continue to use your spreadsheet, someone from the PDPLA sets up a piece of software behind that spreadsheet (or you do it yourself) and then, as each quarterly HMRC filing is due the piece of software extracts the relevant info from your spreadsheet, formats it for HMRC and submits it for you. Simple (well, nothing is ever simple but with the right support…)
BUT – Don't leave it until this time next year before you decide how you will do this.