Calling all landlords – are you ready for HMRC Making Tax Digital?
What is Making Taxing Tax Digital for business (MTD)?
Now that Making Tax Digital for VAT has been implemented, MTD for income tax (for the self-employed and those with income from property) and MTD for corporation tax are scheduled to follow by April 2020.
The essential elements of Making Tax Digital for business are:
- Businesses and organisations (which includes those with income from property) are required to maintain digital accounting records. Using solely spreadsheets and paper records will cease to meet the legal requirements in tax legislation.
- Businesses and landlords are required to use a functional compatible software product to submit their quarterly returns to HMRC. The software uses HMRC’s API (Application Program Interfaces) platform to submit information to HMRC.
What are digital records?
Digital records are maintained using online, or “cloud”, software or apps available from third party software providers.
The necessary information will be:
- Rental amount
- Invoice date and expense amount
- Expense category (to match tax return)
- Any disallowed percentage for personal use
Making Tax Digital will imply that landlords will need to keep their accounting records in MTD-compatible software.
How will the quarterly return work?
Once all the property income and expenses is plugged into your chosen cloud accounting package, you (or your tax agent) will be required to report this information directly to HMRC. The information that will be sent to HMRC will be a summary of property income and expenses for the quarter. Amendments can be added to your quarterly submissions before your end of year declaration. HMRC’s breakdown of the property income and expenses will be similar to the current categories in the self-assessment tax return. HMRC has no plans on changing the deadline to pay your tax bill.
What is a digital tax account?
HMRC is replacing tax returns with digital tax accounts for millions of businesses and individuals. A digital tax account brings together each taxpayer’s details in one place, just like an online bank account. Taxpayers will be able to view their tax affairs in real time, update their information, see at-a-glance how their tax is calculated, and choose payment options.
What if I have multiple properties?
Where multiple properties are held within a property business or an individual landlord, income and expenditure only has to be recorded for the property business as a whole and does not have to be allocated to individual properties.
What if I own all or some of my properties jointly?
Firstly, there is a difference between properties owned by a partnership or simply owned jointly, such as by a married couple. The principles of the proposed system for partners and partnerships are as follows:
- The partnership, rather than each partner, will be responsible for the requirements of making tax digital (keeping a record of each transaction, providing quarterly summary updates and the end of year declaration).
- A nominated partner will fulfil these obligations.
- There will be an option for the nominated partner to push quarterly summary information of their share of the profit to each partner’s digital tax account. With this option, each partner would have an estimate of their profit to date in the tax year.
- When the end of year declaration is made, the nominated partner will be obliged to push each partner’s share of profits to their digital tax accounts.
- The above rules apply to partnership businesses only. They do not apply to property that is jointly held. In this situation each individual who has received income from jointly held properties would report that income separately.
Making Tax Digital for landlords with software
PropBooks is a HMRC compatible software that will allow landlords to:
- Store digital (online) records of rental income and expenses
- Categorise expenses and rental income
- Store invoices and receipts online
- Auto-calculate quarterly tax returns
- Send quarterly tax returns
- File end of year tax returns with confidence
- Provide financial reports on an individual property or a portfolio
- Receive tax estimations from HMRC so there’s no nasty surprises with your tax bill
- Collaborate with their tax agent within the software
Record keeping in real-time and online filing will enable landlords to be more organised and save from up to £1250 in accountant fees. Using PropBooks will guarantee as a landlord you are prepared for the HMRC’s tax changes – PropBooks was designed for this purpose!
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