Everything you Need to Know About Making Tax Digital for Landlords

making tax digital for landlords

What is making tax digital for landlords? As the UK government continues to drive digital transformation, MTD is a crucial step towards a more efficient, accurate, and modern tax system. For landlords, this new regime presents a significant shift in how they report and pay tax on their rental income.

With MTD, landlords will enjoy a more streamlined and automated tax experience, leveraging cutting-edge software and real-time updates to stay on top of their tax affairs. This discussion covers the essential requirements, eligibility criteria, sign-up processes, and key benefits. As well as the vital role of accountants and compatible software in ensuring a seamless transition to this new digital tax landscape. MTD and empower you to navigate this exciting new chapter in UK tax history with confidence and clarity.


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What is Making Tax Digital for Landlords?

MTD for Income Tax rules will apply to all landlords whose combined property or business income is £50,000 or more a year. For these landlords, MTD for Income Tax will replace the current process of completing an annual Self-assessment tax return from 6th April 2026. Landlords with a combined property and business income of £30,000 or more per year will have to follow the rules from April 2027.


How to Calculate Income for Making Tax Digital for Landlords?

Calculating income for Making Tax Digital (MTD) as a landlord in the UK involves accurately determining your taxable property income. To do this, follow these steps:


Step 1: Identify your Property Income

Include all rental income received from your UK properties, such as:

i- Rent from tenants
ii- Fees from tenants (e.g., late payment fees)
iii- Income from services provided to tenants (e.g., utility bills)


Step 2: Add Income from Other Sources

Include other income related to your properties, such as:

i- Interest from deposits held in trust for tenants
ii- Income from rent guarantee schemes
iii- Income from rent-to-rent schemes


Step 3: Deduct Allowable Expenses

Subtract allowable expenses from your total property income, including:

i- Mortgage interest
ii- Property maintenance and repairs
iii- Insurance premiums
iv- Utility bills (if paid by you as the landlord)
v- Agent fees
vi- Legal and professional fees
vii- Council tax (if paid by you as the landlord)


Step 4: Calculate your Taxable Profit

Subtract any remaining allowable expenses from your total property income to arrive at your taxable profit.


Step 5: Apply the Cash Basis

If you’re using the cash basis, you’ll need to adjust your taxable profit to reflect the income and expenses received and paid during the tax year, rather than those accrued.


Step 6: Report your Income

Report your taxable profit on your MTD quarterly updates and annual final declaration, using compatible software to ensure accuracy and compliance with HMRC requirements.


What Information Must Landlords Send to HMRC?

As a landlord, you’ll need to send HMRC quarterly updates with the following information:

1- Total rent received
2- Total allowable expenses (e.g., mortgage interest, maintenance costs)
3- Total taxable profit

Annual Final Declaration
In addition to quarterly updates, you’ll need to submit an annual final declaration with more detailed information, including:

1- Property income (rent, fees, etc.)
2- Allowable expenses (broken down by category)
3- Capital allowances (e.g., for furniture, appliances)
4- Relief for finance costs (e.g., mortgage interest)
5- Total taxable profit for the year

In some cases, HMRC may require additional information, such as:

1- Details of any rent-a-room scheme income
2- Information about any joint property ownership
3- Details of any capital gains or losses from property sales

Remember to keep accurate and detailed records of all your property income and expenses, as well as any supporting documents (e.g., receipts, and invoices). By sending HMRC the required information, you’ll be able to accurately report your property income and expenses.


How do Landlords Sign up for Making Tax Digital?

straightforward process that can be completed online. To get started, follow these steps:


Step 1: Check your Eligibility

Ensure you meet the eligibility criteria for MTD. Which includes being a UK resident, having a UK bank account, and having income from UK properties.


Step 2: Gather the Required Information

Have the following information ready:

1- Your Government Gateway ID and password (if you don’t have one, create an account)
2- Your National Insurance number
3- Your Unique Taxpayer Reference (UTR) number
4- Your property income and expense records
5- Your business name and address (if you’re a sole trader or partnership)


Step 3: Sign up for MTD

Visit the HMRC website and sign in to your Government Gateway account. Select “Sign up for Making Tax Digital” and follow the prompts to:

1- Confirm your eligibility
2- Enter your business details (if applicable)
3- Add your property income and expense records
4- Review and submit your application


Step 4: Choose your Software

Select compatible software that meets HMRC’s requirements for MTD. Popular options include Xero, QuickBooks, and Sage. Ensure the software is set up and ready to use before submitting your first quarterly update.


Step 5: Submit your First Quarterly Update

Using your chosen software, submit your first quarterly update within the required timeframe.


Step 6: Keep Records and Update Them Regularly

Maintain accurate records and submit quarterly updates and an annual final declaration to HMRC. Stay up-to-date with any changes to MTD requirements and software compatibility.


The Bottom Line

In conclusion, Making Tax Digital for landlords aims to streamline tax reporting and reduce errors. By understanding the requirements, eligibility, and sign-up process, landlords can ensure a smooth transition to this new digital system.

With the help of accountants and compatible software, landlords can easily submit quarterly updates and annual declarations, keeping them compliant with HMRC regulations. MTD promises to bring increased accuracy, reduced administrative burdens, and faster tax refunds. Ultimately making tax management more efficient for UK landlords. Leveraging the benefits of digital tax reporting to optimise their financial management and growth. By embracing MTD, landlords can look forward to a more streamlined and stress-free tax experience.


Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK for your income. We will ensure to offer the best services.


Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.