Changes are being made to the process for filing taxes which landlords need to be aware of. From 1 November, all VAT-registered businesses will only be allowed to us Making Tax Digital (MTD) software to complete their VAT returns.
This is one part of the government’s ambitious plan to modernize the HMRC, and it will affect VAT returns, income tax, and corporation tax in the UK. Landlords and estate and letting agencies need to be aware of the impact this will have and start to prepare their software systems.
How does this effect VAT returns?
The MDT process was applied back in April 2019 for VAT-registered businesses (those with a taxable turnover above the VAT threshold of £85,000). Businesses that fall into this category are required to keep digital records and use software to submit their VAT returns.
More recently, from April 2022, landlords and self-employed sales agents with taxable turnovers below the VAT threshold have also needed to use MDT processes and systems for their filings.
The online process will become the only option for VAT returns from 1 November 2022.
What systems do I require to comply with Making Tax Digital?
The software landlords and agents use, must be able to keep and maintain the records outlined in the regulations. A full list of relevant MTD software for landlords and agents is available on the government’s website.
Are there any exemption from the new regulations?
Certain businesses or landlords may be exempt from MTD regulation on the grounds of lack of practicality due to age, disability, location, etc, or for certain religious beliefs.
How does this effect income tax?
Under MTD regulations, any landlord or businesses registered for Income Tax Self Assessments (ITSA) and with an annual business or property income above £10,000 will need to follow the MTD rules from 6 April 2024.
What will change from 6 April 2024 for income tax?
The government guidelines outline the following four things that will take effect from 6 April 2024 for MTD for income tax:
- Self-Assessment Tax Returns for 2022 to 2023 need to be submitted by 31 January 2024.
- HMRC will review the return and check if the qualifying income is more than £10,000.
- If the income qualifies, the landlord or business will need to meet the MTD for Income Tax requirements by 6 April 2024.
- The landlord or business will need to choose and authorise software compatible with MTD for Income Tax.
- The landlord or business will then need to sign up for MTD for Income Tax.
How will income tax need to be submitted under Making Tax Digital rules?
Self-employment and property businesses’ income and expenses information should be submitted quarterly through the MTD software, and allowances and adjustments at least once a year at the end of the accounting period. An End of Period Statement with business income sources should also be provided.
