The government has announced a phased approach to the Making Tax Digital (MTD) for Income Tax Self Assessment, from April 2026 - pushed back from the previous deadline of April 2024.
The government will also review the "needs of smaller businesses, and particularly those under the £30,000 income threshold", considering how to help them meet their income tax obligations. The results of the review will inform the roll out of MTD after April 2027.
Making Tax Digital is the government's ambitious plan to make HMRC "one of the most digitally advanced tax administrations in the world", 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.
Under MTD, landlords registered for Income Tax Self Assessments (ITSA) with an income over £50,000 will need to keep digital records and share quarterly updates on their income and expenditure to HMRC through MTD-compatible software from 6 April 2026.
The deadline for any applicable individuals with an income between £30,000 and £50,000 will move to April 2027.
"A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring," says Jim Harra, Chief Executive and First Permanent Secretary, HM Revenue and Customs.
The government guidelines outline the following four things that will change through MTD for income tax:
However, eligible individuals may be able to sign up for the pilot currently underway to get started on turning their ITSAs digital, in advance of the official deadline.
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.
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 £50,000 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.
Once signed up with MTD compatible software, the guidelines share that will add together the digital records, creating totals for the income and expense categories, to help landlords or businesses submit their quarterly updates.
The software will also help users understand when and how to send these updates. The updates will need to be sent within one month after the standard quarterly period has ended.
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.
This online process has been the only option for VAT returns since 1 November 2022.
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 MTD 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.
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.
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.
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.