The Government’s plans to Revolutionise the UK's Tax System will take a step forward from April 2028 when MTD will be expanded to include those earning more than £20,000 per year.
In her Spring Statement this week Rachel Reeves announced a number of Making Tax Digital announcements which included the confirmation that the income threshold will be dropped to £20,000 from April 2028 Here we take a look at the implications of this change for landlords.
Rachel Reeves’s Spring Statement was more of an update on the state of the economy than any other sort of emergency budget and to the relief of many there were no taxation rule changes at this stage, though there was a hint of more to come in the autumn.
However, reading into the statement further you will find details about planned updates to Making Tax Digital for income tax (MTD IT). This will affect landlords. A date has been set for a reduction in the income threshold to £20,000 and there’s probably further drops in the threshold to come in the future. There’s also a list of new exemptions and deferrals, and HMRC has now confirmed that it will not be providing an online service to enable those who meet the criteria to file the year-end return.
An announcement in the 2024 Autumn Budget said that MTD would include those with incomes of over £20,000 “by the end of this Parliament” showing that Labour intends to continue the plans already set in motion by the previous government.
If you are registered for self-assessment you will need to use Making Tax Digital for Income Tax from 6 April 2026 if you have income from self-employment or property, or both, before 6 April 2025 and this income is more than £50,000 in the 2024 to 2025 tax year. You will need to submit your self-assessment tax return for the 2024 to 2025 tax year by 31 January 2026.
Making Tax Digital for Income Tax from 6 April 2027 will apply to you having income from self-employment or property, or both, before 6 April 2025 which is more than £30,000 in the 2025 to 2026 tax year. So, by 6 April 2027 you need to submit your self-assessment tax return for the 2025 to 2026 tax year by 31 January 2027.
You or your accountant must sign up for MTD and source suitable software to submit your self-assessment to HMRC.
Making Tax Digital (MTD) represents a major change in the way the UK's tax system will operate in the future. HMRC claims it will make the UK income tax administration system more efficient and make it easier for individuals and businesses to get their tax right and help them keep on top of their own financial affairs.
MTD began in April 2019 with a rollout for VAT-registered businesses. The government’s objective was to illuminate paper form filling by digitising the process of reporting to HMRC. This first step marked the beginning of a long process that will eventually see all those individuals and businesses who submit annual self-assessment digitally.
Phase one included those VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000). They have been required to keep digital VAT records and submit their VAT returns using MTD-compatible software.
Phase two switched over to income tax. The original plan was to introduce MTD for income tax self-assessment for self-employed individuals and landlords with an annual business or property income over £10,000. However, this ambitious target appears to have been too much, and more recent announcements have curtailed these thresholds and timelines.
In the latest Spring Statement, several critical updates regarding MTD for income tax were revealed:
Digital record keeping involves recording the accounting transactions in the business, an amount, a category and the date of a business transaction involving income and expenditure. The digital records will then form the basis for your quarterly updates to HMRC, reporting the summary totals of your income and expenditure.
Your quarterly updates will not need to include tax or accounting adjustments. At the year-end you will be required to file an adjusted return which will update the information submitted in the quarterly returns to bring in other sources of income, claim reliefs, tax adjustments etc. The deadline for this fining will be the same as now, for the self-assessment return – the 31 January following the end of the tax year in question.
HMRC employs the concept of ‘digital links’ when it comes to recording and submitting data. It means that once data has been entered into the digital records, any transfer to HMRC or other software has to be done digitally, with no manual keying or copy and paste allowed.
HMRC states that “each piece of software must be digitally linked to other pieces of software to create the digital journey”. This “digital journey” is in fact a digital audit trail that reveals a clear unbroken passage from the digital record through to the VAT return or Income Tax return numbers that are then submitted to HMRC.
So, the importance is, it’s this digital audit trail that is essential in proving compliance with the digital links mandate. By reducing complexity in this process, you are far more likely to achieve an unbroken chain, so it’s advisable not to perform amendments and adjustments outside of the process in manual spreadsheets.
There will be many benefits with MTD once you are used to the process. It aims to improve both the taxpayer experience and the efficiency of HMRC operations. To summarise some of the advantages:
Exemptions and deferrals are there to accommodate practical difficulties that some people will have, and these will continue to emerge for certain groups of taxpayers. Therefore the Government has announced some further exemptions and deferrals in The Spring Statement. These include:
The following temporary deferrals were also announced, Ministers of religion, Lloyd’s underwriters. Further, recipients of married couples’ allowance and blind Persons allowance will not be required to join MTD IT during this Parliament. Individuals required to submit an SA109 (residence/remittance basis pages) won’t be brought into MTD until April 2027.
Those who find themselves in these categories will need to “notify and satisfy” HMRC that they are exempt. Hopefully HMRC need’s to clarify some of this soon.
Most accounting packages, from Sage to Xero will do the job but a specialised accounting package such as LandlordVision is perhaps more appropriate for landlords as it included functions to help manage tenancies.
There’s an ongoing collaboration between HMRC and the software providers to ensure that software is appropriate and compliant, and there’s a list of HMRC compatible software here - https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat . But watch out, not all the products listed on HMRC’s MTD-compatible software list are able to complete the full software journey, the final step of submitting the self-assessment return.
Many landlords will rely on their accountant to advise them but as Emma Rawson writing for AccountingWEB says:
‘Some taxpayers choosing to “go it alone” will, naturally, gravitate to the cheapest options available, and will not appreciate the subtlety regarding what different software offerings can and cannot do. In the worst-case scenario, those falling into this trap might not realise they cannot actually file their return through the software they’ve chosen until they come to 31 January.’
HMRC is said to be working closely with the accounting professional bodies and software houses to try to identify possible gaps in provision and improve guidance.
Tags:
Comments