Making Tax Digital: Preparing your agency and your landlords
Making Tax Digital aims to help businesses and individuals in the UK keep digital records and use software to meet with their HMRC obligations, across VAT, income, and corporation tax. Here's what your agency and your landlords need to know to stay compliant.
The government has the ambitious plan to make HMRC "one of the most digitally advanced tax administrations in the world" through Making Tax Digital (MTD), affecting 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 in line with the latest legislation to stay compliant.
1. VAT returns
Making Tax Digital was launched back in April 2019 for VAT-registered businesses with a taxable turnover above the VAT threshold, which stands at £85,000.
Businesses that fall into this category are required to keep digital records and use software to submit their VAT returns. From April 2022, landlords and self-employed sales agents with taxable turnovers below the VAT threshold have also needed to ensure they meet these conditions and have appropriate systems in place.
How will the VAT return process change under Making Tax Digital?
The software relevant landlords and agents use must be able to keep and maintain the records outlined in the regulations, prepare VAT returns using the information in the digital records, and use the API platform to communicate with HMRC.
A full list of relevant making tax digital software for landlords and agents is available on the government's website. If these systems are in place with up-to-date digital records, the VAT-return information will be automatically collected for the business to validate and confirm submission to HMRC.
Are any businesses exempt from the new regulations?
Businesses or landlords may be exempt from MTD regulation if they can prove to HMRC that it's not "practical" for them to use these digital tools due to age, disability, location, etc, or for religious beliefs that restrict them from keeping electronic records.
2. Income Tax
Under making tax digital, landlords and 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 the new date of 6 April 2024 - giving relevant businesses an extra year to prepare.
Eligible businesses can sign up for the pilot currently underway to get started on turning their ITSAs digital, in advance of the official deadline.
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 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.
With MTD for landlords, if their income comes from more than one source - rent and self-employment for example - it's the combined income which will count towards the £10,000 threshold.
However, if the income is from a jointly owned property, the qualifying income would be based on the share of ownership i.e. half of the income if both parties have equal shares in the rented property.
3. Corporation tax
A consultation for implementing MTD for corporation tax closed in March 2021. As well as applying to estate agencies, landlords operating as a limited company to benefit from corporation tax rather than income tax rates will also be affected and will need to prepare for the digitalisation of their systems.
What will change for corporation tax under Making Tax Digital?
Under the proposals, businesses will need to keep accounting records about the company's transactions, disclose the financial position of the company and prepare its accounts, plus complete a Company Tax Return - all digitally, to capture real time information. The government is expected to mandate any changes by 2026.
This article is intended as a guide only. It is not exhaustive and does not constitute legal advice. For more information, please refer to gov.uk.