HMRC admits Making Tax Digital will cost landlords mo...

The government has confirmed that Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will cost landlords both extra money and time.

MTD will apply from April 2026 for those with qualifying income over £50,000 and from April 2027 for those with qualifying income over £30,000.

This latest pair of deadlines was released last November but HM Treasury has now set out more details.

The new regulations require a relevant person to keep and preserve their tax records electronically and to submit reports to HMRC using approved software.

A report of the business’s trading or property income, allowable expenditure and claims for allowances or reliefs against such income must be submitted in relation to each tax year. And interim cumulative reports must be submitted quarterly on fixed dates.

HMRC estimates that those within the £30,000 to £50,000 threshold may incur an estimated average transitional cost of £350 and an average annual additional cost of £110. Those in the above £50,000 threshold may incur an estimated average transitional cost of £285 and an average annual additional cost of £115.

The Revenue says transitional one-off costs could include some or all of the following - time spent in familiarisation with the new MTD obligations (digital record keeping and quarterly submission of information); in-house training; the purchase of new hardware or upgrading of existing hardware (expected to affect a small minority); and additional accountancy or agents’ costs. However, transitional costs can be offset against the business’ profits for tax purposes.

Continuing costs could include - cost of software subscription for those moving to MTD compatible software, from either paper or spreadsheet systems; additional time for making quarterly updates; any cost of bridging software to provide MTD compatibility for those who prefer to continue using spreadsheets; marginal increases in some existing software costs to provide MTD compatibility. Again, software and agent costs for business purposes are tax deductible.

An HMRC statement says: ”Making Tax Digital will exploit the opportunities offered by digitalisation to make it easier for everyone to get tax right. Many other countries have already done this or have digital systems in development. Errors in handling tax affairs contribute to the tax gap — the amount of tax that is due but goes unpaid. The tax gap for Self Assessment businesses is around 18.5 per cent or £5 billion. Using software to keep digital records and make regular updates has been shown to reduce the potential for error and time spent making corrections, and thus support business productivity.

“Digitalising our service will bring customer benefits by reducing the risk of unintentional customer errors; saving them time when they come to submit their end-of-year tax return; supporting wider productivity and less time managing paperwork through use of digital tools; and enabling HMRC to better tailor services to customers.”

Originally announced at the 2015 Budget 2015 and following a consultation period in 2016, HMRC implemented the first phase of MTD from April 2019 for VAT-registered businesses.

So from April 2026 or 2027, depending on income, landlords with £30,000 or more of property income will be expected to keep their records digitally, provide digital quarterly updates, and be able to provide their ITSA return information to HMRC through MTD compatible software.

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