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If you’re feeling uneasy about the upcoming Making Tax Digital deadline, you’re not alone. Many landlords are feeling concerned about the changes ahead, and that’s completely understandable. However, we’re here to ease your worries by explaining how it all works and talking about some of the many benefits that the changes will offer UK landlords.
While Making Tax Digital will require landlords to change the way they record rental income and submit information to HMRC, the new process is designed to be simpler and more efficient.
In this article, we’ll bring you up to speed on Making Tax Digital and explain the many ways in which the new system should make life easier for landlords.
What is Making Tax Digital (MTD)?
So, what is Making Tax Digital?
Making Tax Digital is a government initiative that aims to digitalise the UK tax system to make managing taxes simpler, more efficient, and more accurate.
The initiative will require businesses and individuals to do the following:
- Keep digital records.
- Use software that works with Making Tax Digital.
- Submit updates to HMRC electronically every quarter.
Once MTD comes into effect, it will be compulsory. A very small number of people may be exempt, including those who cannot get a National Insurance Card and anyone who cannot access the internet or use digital devices.
When is Making Tax Digital coming into effect?
If the initiative feels like it’s been a long time coming, that’s because it has! First announced in 2015, MTD for Income Tax was due to start in 2024 but got pushed back to 2026. The date is now set for April 2026, giving us a couple more years to prepare!
MTD is making a phased entrance. It has been in effect for VAT-registered businesses since 2022. The next phase to come into effect will be MTD for Income Tax, which will include most landlords.
From 6 April 2026, MTD for Income Tax will apply to those with annual business or property income exceeding £50,000. In April 2027, it will extend to those with income above £30,000. Dates for ITSA partnerships and corporation tax are yet to be announced.
What will landlords need to do to comply with Making Tax Digital?
MTD requires all landlords to transition from paper-based or spreadsheet accounting to using specialist MTD-compatible software, like Landlord Vision.
Nothing changes regarding the type of tax records you need to keep; all that changes is how you manage and submit your tax information.
The software you use to manage your tax will need to be compatible with MTD. If you already use software, you will need to check if it is compatible and move to a different software if it isn’t. If you don’t yet use software for bookkeeping and tax management, you will need to sign up and start using one.
Once you’re all set up, you can sign up for MTD. When MTD for Income Tax comes into effect, you will be required to use your software to declare your rental income and submit four quarterly updates to HMRC. You will also need to submit an annual Final Declaration that confirms that the information submitted is complete and accurate.
How will Making Tax Digital benefit landlords?
While some landlords feel apprehensive about changing their existing accounting processes, MTD should only benefit your business in the long run. While there may be a brief learning curve as you adapt to the new software and way of working, transitioning to digital tax returns is a less complicated and more efficient way of working.
We’ve compiled this list of ways that MTD will benefit landlords to ease your concerns and inspire you to sign up and get started sooner rather than later.
- Reduce human error for more accurate tax payments
When you’re relying on loose paper receipts, Excel spreadsheets, and manually working things out, it’s easy to make mistakes. Errors can be time-consuming to rectify, or if they go unnoticed, they can result in underpayment or overpayment of tax or even a penalty from HMRC. When you digitise the process, many of the calculations are done automatically by your software, saving you time, reducing the risk of errors, and ensuring that your tax returns are accurate.
- Real-time reporting for better tax planning
There’s nothing worse than getting to the end of the tax year and finding yourself faced with an unexpectedly large tax bill. MTD requires landlords to submit four quarterly updates to HMRC rather than one annual return. This change will help you keep track of your tax bill throughout the year so that there are no nasty surprises at the end of the year. You will also have access to real-time reports where you can check what you owe at any point in time to enable better tax planning.
- Simplified, stress-free tax management
If you’re guilty of always leaving your tax return until the last minute and then having to organise a year’s worth of bookkeeping and tax management in the final few days, then MTD will help you avoid this stressful situation. MTD requires you to break your bookkeeping up into manageable quarterly updates, helping you keep your tax affairs organised and up-to-date throughout the year and eliminating that dreaded year-end panic.
- Save time
Specialist MTD-compatible software helps streamline and automate much of the tax management process, allowing you to spend less time on bookkeeping and more time growing your rental business. The software will automatically perform calculations for you, and many will also pull data in directly from your bank accounts and extract and record relevant data from your scanned receipts and invoices. This automation helps you to keep your financial records up-to-date effortlessly and reduces the amount of time you spend on time-consuming data entry tasks.
- Go paperless
If you haven’t yet digitised your bookkeeping, you will feel a wave of relief when you finally do. Transitioning from stacks of paper receipts and invoices to a digital system is not only safer and more secure but also infinitely more organised and efficient. By going paperless, you can reduce the amount of clutter in your office and free up valuable space. Digital records are also searchable, making it quick and easy to find the information you’re looking for. While this all sounds great, one of the most significant benefits of going paperless is its positive impact on the environment. By reducing your reliance on paper, you lower your carbon footprint, making your business operations more sustainable and eco-friendlier.
- Improve data security
Going paperless and digitising your data will also significantly improve your data security. Paper documents are at risk of being lost, stolen, or damaged by events like fire or flooding. When you use MTD-compliant software to digitise your data, it will be stored safely in the cloud and secured through two-factor authentication and data encryption to guard it against unauthorised access and cyber threats. This is particularly important for complying with data protection laws when managing sensitive tenant information. Improving your data security will help protect against potential liabilities and compliance issues and build trust with your tenants.
- Integrate tax management with other software tools
If you are already using tools like accounting software, bank feeds, and property management systems to manage your rental property business, many MTD-compatible solutions can seamlessly integrate with these tools. This integration helps to automate and streamline processes and ensure consistency across your records, ultimately creating a more streamlined and efficient rental business.
- Collaborate easily with your accountant
MTD software makes it easy to collaborate with your accountant by enabling you to share financial data instantly. With real-time access to your financial records, your accountant can provide timely advice, check your records for accuracy, and help you stay compliant, all without the need for manual data transfers or time-consuming meetings.
Preparing for Making Tax Digital
While the deadline for Making Tax Digital may still seem distant, why wait until the last minute to start enjoying the benefits?
You can start using MTD-compatible software today to simplify your tax management, reduce errors, and ensure you’re all ready to meet HMRC’s requirements when the deadline does finally roll around.
You may even be eligible to sign up voluntarily to help test and develop Making Tax Digital for Income Tax. The government website has more information about this.
Comply with MTD with Landlord Vision
If you’re looking for a complete software solution for property management and MTD compliance, Landlord Vision does it all.
No matter the size of your property portfolio, Landlord Vision offers you the tools needed to make running your rental business uncomplicated and streamlined.
Featuring a built-in accounting engine, Landlord Vision is compliant with MTD and enables you to submit quarterly digital income tax updates in just a few clicks. It also notifies you when deadlines are due so that you never miss one again!
Beyond tax responsibilities, Landlord Vision can also help you to:
- Manage your finances effectively.
- Track tenancies.
- Track Right-to-Rent statuses.
- Scan in and store receipts, invoices, and other paperwork.
- Collect rent and send automated reminders to tenants.
- Create personalised online tenant portals.
Read our article “Using Landlord Vision for MTD” to learn more about what the Landlord Vision Making Tax Digital integration can do and how it makes complying with MTD effortless.
