Making Tax Digital - 5 Months To Go

Our October member meeting was a working session on 'Making Tax Digital'(MTD) and whether you participated or missed it, this article contains essential follow up detail, answers to questions and further suggestions on how to proceed.

Background

The first thing landlords need to understand is that this is a big deal – if and when you need to switch, and for most that will be April next year, you will need to ensure your accounts are up to date for tax purposes at the very least, once every 3 months. The days of receipts in a carrier bag, cheque book stubs and pulling it all together during the Christmas period after the April tax year end ready for the January 31^st deadline are long since gone.

For most people, this means changing how you manage your business operations so that the accounts—used to document activity and calculate tax—are kept consistently up to date. In practice, this could involve replacing your spreadsheet with a dedicated business software package such as Sage, Xero, or QuickBooks. Free options are available too, though they often come with conditions—for instance, NatWest requires users to maintain a business current account to access its software. Landlords may prefer specialist platforms like Hammock, Lodgify, or Portfolio, which cater to property-specific needs and support open banking. Alternatively, if you're confident with your existing spreadsheet setup, you can continue using it—provided you keep it updated and use bridging software to submit quarterly returns. 

What You Need To Know

Fortunately, we had expertise at our meeting in the form of Duncan Gardner from our accountants Morris Crocker.

He has an excellent presentation which we did not use at the meeting, but ALL landlords should spend time reviewing, see it here: 

During the meeting, there were some excellent questions – and for those who missed it (or may have been in the room but not paying full attention), we have an edited and annotated video of the meeting for members to watch here:  (will be added shortly)

 There were some questions which Duncan had to research before answering and he was kind enough to send the following answers after the meeting:

1. Exemptions – the following are automatic exemptions which do not need to be applied for – trusts, individuals without national insurance numbers, lifetime tax returns for individuals who have died, Lloyd's members but only in relation to their underwriting business and non-resident companies. You can also apply for exemption if you believe that you are digitally excluded and reasons include age, health condition, disability, religion, lack of internet access – exemption in these cases needs to be applied for even if you have previously been given exemption for VAT filing. There is also an automatic exemption for carers but only in respect of their qualifying care-related income (qualifying means foster carer or shared-lives carer).
2. Discretionary trusts do not have to file MTD returns.
3. The quarterly MTD returns are cumulative through the tax year so that errors or omissions from one return can easily be corrected in the next return.
4. Making Tax Digital for income tax is completely separate to VAT so it is possible that a landlord with VATable furnished letting income will have to complete two returns – one for VAT and one for income tax. It should be possible to amend the VAT quarter if necessary so that at least both returns are made up to the same date.
5. I have looked at the question of what happens if you have rental income and self-employed income and, contrary to the impression I gave in the meeting, I would confirm that both are added together to see if the £50,000 has been breached. However, one MTD return will be needed for each business – ie two returns each quarter.
6. The initial requirement to join MTD will be based on your relevant income as shown on your 2024/25 tax return. If your income has fallen below £50,000 since then (for example you have sold a rental property), you will still have to do MTD unless it has also fallen below the £30,000 threshold that will be applied the following year – otherwise you need to be below the threshold for three consecutive years before you will be able to leave.
7. Income not covered by MTD (for example untaxed interest or dividends) will need to be reported on a year end return similar to the current self-assessment tax return; I do not have any more detail than that at the moment so watch this space!

And of course, HMRC have some excellent materials and webinars which, pleasingly are quite clear and informative, full details here: HMRC videos and webinars for Making Tax Digital for Income Tax - GOV.UK

A Comment On Carers

 I caused some excitement on the night by announcing that 'carers' would be exempt from MTD – prompting several members to suddenly decide they'd look after their old mother after all…

Sadly, it appears that this is just another quirk of our archaic and grossly over-complicated tax system.

Instead of saying 'any sole trader with income above a certain amount needs to switch to MTD on the following date' which would be logical, simple to administer, maximise revenue and make sense, the treasury and HMRC have decided they want to make life harder for landlords but not for sole traders operating care homes, so they added the exemption for 'carers'. Thus, if you are a landlord letting property to any and all forms of tenant you must MTD. If you are the owner of a care home and let rooms to those for whom you care, then you need not MTD.

Suggestion For The 'Typical Landlord'

Based on the show of hands at our meeting, most landlords still rely on spreadsheets to track their accounts and a majority prefer to ask an accountant to compile and submit their annual tax return on their behalf. If you are in this situation what should you do?

Here is our suggestion:

1. Work out when you need to switch to MTD (see Duncan's excellent charts above)
2. Talk to your accountant (you don't want to have to pay him 5 times a year but conversely, you want the simplest solution for both him/her and yourself)
3. Update your spreadsheet (probably only a minor tweak) so that it will work with bridging software (we can help with that)
4. Aim to change how you operate so that your spreadsheet will be 'current' on the 4 quarterly dates
5. Use bridging software to submit the appropriate data from your spreadsheet each quarter
6. At year end, work with your accountant as you do today and he/she will correct any issues with your submitted MTD data and file your year end consolidated return on your behalf as before

We appreciate that many members may feel daunted by the concept of 'bridging software' and 'submitting their own MTD data' but as you saw at the meeting if you attended, we do have members and others skilled in these areas and are looking at running one-to-one sessions to help individual members get ready. 

Next Steps

f you have not responded yet and may need help or support getting ready for MTD, do complete our very short questionnaire please.

Find it here:  https://www.surveymonkey.com/r/ZFVFVQH