Tax compliance is often seen as one of the least glamorous aspects of managing property, but it’s also one of the most critical. With the government’s rollout of Making Tax Digital for Income Tax and Self-Assessment (MTD ITSA), landlords need to adapt to significant changes in how they report their income and expenses.
To help, we’ve broken down what MTD ITSA is, its timeline, the challenges and benefits, and how you can prepare to stay ahead of the curve.
What is MTD ITSA?
Making Tax Digital (MTD) is a government initiative aimed at modernising the tax system.
MTD ITSA specifically targets Income Tax Self-Assessment and requires affected landlords to keep digital records and submit quarterly updates to HMRC using compatible software.
If you’re a landlord with an annual property income exceeding £50,000, MTD ITSA applies to you.
While it might sound daunting, the ultimate goal is to streamline tax processes, reduce errors, and make it easier for you to manage your tax obligations.
The impact and timeline of MTD
MTD for VAT was the first phase of this initiative, and now it’s the turn of Income Tax.
Here’s what you need to know about the timeline:
- April 2026:
MTD ITSA becomes mandatory for landlords earning over £50,000 annually.
- April 2027:
The threshold drops to £30,000, bringing more landlords into the fold.
- Future phases are expected to encompass all landlords, but these dates have yet to be confirmed.
The shift represents a significant change in how tax data is recorded and submitted. This moves away from the traditional annual tax return to more frequent reporting.
Challenges and benefits of MTD
Most landlords will find challenges in the following:
- Adapting to digital tools:
For some, the transition to digital record-keeping may require learning new software or upgrading existing systems.
- Initial costs:
Investing in compatible MTD software can feel like an extra expense, particularly for smaller landlords.
- Increased frequency of reporting:
Quarterly updates mean that tax responsibilities become a year-round consideration rather than a once-a-year task.
But they’ll also discover some great benefits:
- Reduced errors:
By automating much of the process, MTD reduces the risk of manual errors, which can lead to penalties or miscalculations.
- Better financial visibility:
Regular updates force landlords to stay on top of their finances, giving a clearer picture of rental income and expenses.
- Time savings:
With the right tools, tasks like categorising expenses and generating reports become quicker and easier.
As an example, a landlord with multiple rental properties may initially find the idea of quarterly updates overwhelming. However, once they adopt digital tools, they might find it easier to track their income and expenses in real-time rather than sorting through piles of receipts at year-end.
Preparing for MTD and remaining compliant
Here is our four-step action plan for landlords.
1. Assess your current system:
Are you still using spreadsheets or manual methods for record-keeping? Now’s the time to evaluate whether these approaches will meet MTD requirements.
2. Choose MTD-compatible software:
HMRC requires you to use software that integrates with their systems. This software will enable you to keep digital records, categorise transactions, and submit quarterly updates.
3. Plan for quarterly reporting:
Unlike the annual self-assessment deadline, MTD means you’ll need to report rental income and expenses every three months. This means setting aside regular time to review your finances or working closely with your accountant to stay on track.
4. Train and adapt:
If you’re not confident with digital tools, invest in some training. Many software providers offer excellent support and tutorials to get you started.
Finding the right MTD software
There’s no one-size-fits-all solution, so it’s essential to find software that meets your specific needs.
Look for options that:
- Are HMRC-approved
- Offer features like expense tracking, rental income management, and real-time reporting
- Integrate with your existing systems or banking platform
- Provide support and training for users.
Popular choices include QuickBooks, Xero, and FreeAgent.
For landlords, there are specialised tools like Hammock. Many landlords have found FreeAgent particularly helpful as it integrates seamlessly with various banking systems and simplifies the tax reporting process.
Final thoughts
Making Tax Digital for Income Tax and Self-Assessment is a significant shift, but with the right preparation, it can actually simplify your tax processes.
We advise using digital tools and staying proactive. You’ll then be able to remain compliant but also gain insights into your property portfolio’s financial health.
If you’re feeling overwhelmed by the upcoming changes, our team of accountants is here to help. From choosing the right software to staying on top of quarterly updates, we’re committed to making the transition to MTD as smooth as possible for landlords.
