Digital Tax On The Horizon For Landlords
The government have announced plans to extend the compulsory digitalisation of tax to self-employed businesses and landlords over the next three years.
Currently, companies with a turnover above £85,000 must submit their quarterly VAT tax return online following the rules of Making Tax Digital (MTD).
As of April 2022, this will extend to all VAT-registered businesses with a taxable turnover below £85,000.
A year on, landlords and self-employed businesses with an annual business or property income above £10,000 will have to comply with the MTD programme to file their self-assessment tax returns on or after 6th April 2023.
What is Making Tax Digital?
The Making Tax Digital programme was initially announced in 2015 by former chancellor George Osborne.
The programme is part of the HMRC’s plans to “become one of the most digitally advanced tax administrations in the world” and make tax reporting easier for everyone.
By abandoning paper records and using online software, MTD aims to minimise errors and improve the overall accuracy of tax submissions.
In 2018-2019, the government reported that ‘avoidable mistakes’ cost the Exchequer £8.5 billion:
“The majority of customers want to get their tax right but the latest tax gap figures show that too many find this hard […] The improved accuracy that digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors.”
Jesse Norman, financial secretary to the Treasury, commented: “Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.”
Making Tax Digital for landlords and letting agents
The government have announced the changes well in advance to give landlords and lettings agents plenty of notice.
April 2023 is a long way off – so there’s no need for landlords to take immediate action right now. However, it’s certainly something to bear in mind and – as Jayne rightly said – “watch this space” for further information and direction from the government.
Many landlords are already submitting their self-assessment tax return online, so the Making Tax Digital rules will be a relatively easy switch. Although, there will be one major difference: you’ll have to submit financial updates every quarter and provide an end-of-year report declaring any reliefs or allowances.
As for those who are still using paper account ledgers, you’ll have to step into the world of modern tech and find a software compatible with the Making Tax Digital programme.
What are thoughts on the Making Tax Digital programme? Let us know in the comments below.