A big change in the way landlords monitor their property finances and file their taxes is fast approaching in the form of Making Tax Digital for Income Tax Self-Assessment. 

MTD for ITSA will affect all landlords with an annual business or property income of over £10,000. As of April 2024, these landlords will be required to switch from the current annual tax submission to quarterly tax assessments plus a final submission, for a total of five submissions a year. 

The extra work required to comply with this change will not easily fit within the busy schedules of landlords. So, with just over 18 months to go until the deadline, how can we turn this challenge into an opportunity? 

What is MTD for ITSA? 

MTD is a UK government initiative that impacts a variety of stakeholders, including landlords. The new requirements for landlords are set out in the Income Tax (Digital Requirements) Regulations 2021, replacing the current self-assessment system and the annual self-assessment submissions. 

Instead, quarterly submissions will provide regularly updated estimates of total tax due, while the payments will still be processed on a yearly basis. 

Another requirement is the use of functional compatible software to submit records to HMRC. This means that landlords currently using spreadsheets and other manual processes to manage their finances, such as filing paper invoices and receipts, will need to transition to a digital solution.  

Why have the changes been introduced? 

HMRC are introducing MTD for ITSA with the idea that keeping digital records and submitting figures on a more regular basis (therefore keeping track of how much tax is owed in real time) will give landlords greater visibility – and therefore control – of their finances.  

In addition, HMRC hopes it will reduce the number of mistakes that are made, closing the tax gap that emerges from unpaid taxes, which the latest figures indicate stands at £34.8 billion.  

Preparing for the deadline 

Firstly, if you engage an accountancy firm to manage your finances, ask them about their  plans for MTD and the changes they are making ahead of the deadline. What software are they using? Is it compatible with the MTD requirements? Does the software require a lengthy onboarding process?  

If you manage your finances by yourself, now is the time to get your spreadsheets and filing systems in tip top shape.  

Managing your finances effectively will be much easier if you have a dedicated bank account for the properties in your portfolio. This will help to avoid muddying the waters between personal and property transactions.  

Whether you use an accountant or not, it’s important that you identify and become familiar with a system that works for you. A platform like Hammock can bring the property transactions from any of your bank accounts into one place, making it easy to search, filter and categorise income and expenses and providing you with real-time visibility of your property finances. 

The time to act is now 

As with any regulation change, leaving it to the last minute will result in much higher levels of stress and may lead to mistakes due to being unfamiliar with the requirements. 

As mentioned, the changes to MTD for ITSA will likely require you to adopt a new software or process to the one you currently use. By starting the transition at the earliest possible stage, you give yourself the best chance to understand what it is you need to do and how you can do it.  

By being organised and getting ahead of the game, you can minimise the time spent on filing tax returns, despite the increased frequency. In turn, this will free up more time to spend on more value-added tasks to look after your property investments and grow your portfolio.  

Future opportunities 

It is easy to see regulatory changes as a threat. Instead, MTD for ITSA should be looked upon as an opportunity for landlords to look at the way they are managing their finances. By making processes more effective and efficient, we may well look back on April 2024 as a date that transformed the property industry for the better.  

* Manoj Varsani is founder and chief executive at property finance platform Hammock *