HMRC’s MTD – Making Tax Difficult for Landlords!

Filed in Landlords by on 1st March, 2019 0 Comments

MTD – Making Tax Difficult for Landlords! 

Actually, MTD means “Making Tax Digital”

HMRC has changed it’s position on a number of occasions with regard to when it will require landlords to adopt MTD for income tax reporting.  As things currently stand, the 2019 start date has been delayed, landlords now need to prepare for MTD reporting to commence April 2020.  HMRC give this as the ‘earliest date’, as such MTD’s implementation for landlords is still subject to change.  We will monitor and advise accordingly.

What is MTD?

Landlords need to be aware that HMRC’s method for tax reporting is changing. Landlords will need to prepare for this change prior to the first MTD landlord tax reporting year commencing April 2020.  Under MTD, tax reporting will be quarterly with the first MTD tax report due by the end of July 2020. See HMRC’s Overview of MTD dated 20th Feb 2019.

Landlords currently keep their accounting records in a variety of ways.  They may use paper records, spreadsheets or accounting software. These records are then used to manually prepare an annual tax return nine months after the tax year has ended. HMRC has concerns relating to this long delay and also inaccuracies of tax reporting.

Landlords will no longer be able to input data manually.  Inputs will need to be linked to HMRC’s digital tax accounts via landlord acquired MTD compatible software/app or bridging fix (see software section below).

What is required:

The Government will require landlords to:

  • Maintain their records digitally via MTD compatible software or apps
  • Report summary information to HMRC on a quarterly basis through HMRC’s MTD ‘digital tax account’
  • Make an end of year declaration through HMRC’s MTD ‘digital tax account’

Digital tax accounts are like online bank accounts. They are allegedly, secure areas in the ‘cloud’ where businesses and landlords can see all of their tax details in one place.

When does MTD become relevant?

Landlords, with an annual tax income that exceeds £10,000 and also small businesses with an annual income below the VAT registration threshold (currently £85,000), will be required to start MTD reporting for the tax year commencing April 2020, at the earliest (so as mentioned previously, this date has yet to be confirmed and could be later).

MTD is not relevant to landlords with an annual taxable income of less than £10,000.

Timing & Frequency of Tax reporting for Landlords (assuming MTD for landlords commences April 2020):

  • Initial tax report – Period April 2020 to June, reporting in July 2020
  • 2nd tax report – April to Sept, reporting in Oct 2020
  • 3rd tax report – April to Dec, reporting in Jan 2021
  • 4th tax report – April to March 2021, reporting in April 2021

In addition to the above, the traditional manual type of tax return for tax year 2019/20 may still need to be submitted by Jan 31st 2021. This could be repeated again for 2020/21 tax return submissions by Jan 31st 2022 and continue until HMRC confidence is achieved in their MTD reporting method.  Note that this requirement for ongoing duplication via manual reporting is being questioned and hopefully it will be dropped.

Businesses

If you are a property business that has an income above the VAT registered threshold (currently £85,000), then HMRC requires that you cross over to MTD for the Tax Year commencing April 2019.  In this instance the requirements of HMRC’s guidance “Making Tax Digital for Businesses” needs to be followed.  Businesses and Sole Traders with an income below the VAT threshold will be required to commence MTD with landlords in 2020.

Software

MTD will require landlords to use an MTD compatible software program that can link to HMRC’s digital tax accounts.  Currently there is no (known) MTD compatible software solutions suitable for landlord reporting, however, providers of existing software packages that are designed for landlords are in the process of developing their software to be MTD compliant.

If you currently use a landlord accounting program, now is the time to contact your provider to ensure the software used is being developed for MTD use and that is will be available from April 2020.

If you are interested in using a PRS landlord specific property management software program, you will be pleased to know that we have formed an affiliation with “Landlord Vision” so that members can sign up to their software at a discounted rate (please click here and use discount code: WESX015).

Landlords that use spreadsheets, may continue to do so, however, a bridging program will be necessary to link the spreadsheet to HMRC’s digital tax account.  For most landlords that currently use spreadsheets, this is likely to be a simpler, cheaper and more viable option. Bridging solutions will require regular updating by the developer to ensure compliance with HMRC’s MTD digital account demands and hence an annual charge is anticipated.  If you wish to explore how a spreadsheet bridging solution would work then this VitalTax demo should help.

The Cost of MTD

MTD for landlords will carry a time and financial burden. The use of compatible software is likely to be charged according to number the of tenancies held. “Landlord Vision” is an example of a software provider that currently charge landlords a monthly fee. This approach will ensure the software is developed to provide MTD capability as and when required and for it to be continually developed as HMRC requirements change over time.

Those landlords who are not confident with IT will need to become more IT savvy. Alternatively, they may wish to employ an accountant, resulting in even further costs.

Those who already employ an accountant will see an increase in accounting costs due to the increased frequency of reporting.

Tax reporting five times a year will consume time in not just meeting the tax reporting deadlines but also an increase in time consumed whilst trying to juggle holidays and other activities around these key MTD tax reporting deadlines!

Why is ALL Wessex alerting members to MTD now?

Landlords need to be aware of MTD to ensure they are appropriately positioned to start recording information in an MTD acceptable format as and when HMRC require MTD reporting of landlord income.  If landlords are to purchase landlord accounting software, then they need to ensure it will be developed with MTD functionality. Landlords with spreadsheets will need to select a bridging solution.  Getting an appreciation of the various products provided by bridging solution providers to understand their effectiveness, ease of use, functionality and cost is a good idea.

Further sources of MTD information:

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

https://listentotaxman.com/uk-tax/tax-guides/making-tax-digital-landlords.html

https://www.icaew.com/technical/tax/making-tax-digital/mtd-articles/common-misconceptions-about-making-tax-digital

https://www.moorestephens.co.uk/msuk/east-midlands/news-views-from-the-east-midlands/november-2018/making-tax-digital-bridging-software

 

 

 

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About the Author ()

Rob Crawford is the chairman of the Association of Local Landlords (Wessex). Rob is a practicing landlord with a property portfolio that includes small private residential properties and HMO's. Rob is a qualified letting agent and former owner of Kingfisher Lettings & Management. He is now a share holder of the successful online lettings company Lettingsupermarket.com.

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