Making Tax Digital for the self employed and landlords with gross income over £10,000 will be compulsory from April 2023, but lets look at some the potential requirements and issues
MTD means reporting to HMRC 4 times a year plus a 5th year end return. The records have to be digitally linked using HMRC approved software Find software that’s compatible with Making Tax Digital for VAT – GOV.UK (www.gov.uk)
The information will probably be the same as Self Assessment Returns, we won’t know exactly what is needed till September 2021 when HMRC release the API requirements.
Landlord report in quarters start from 6th April (some are suggesting this should be moved to whole months – as having 6th to 5th each period doesn’t seem logical)
Many landlords have other businesses so they may have a separate quarter for VAT and possibly yet another one based on their Sole Trader or Partnership reporting period (year end).
So you could be reporting 3 separate quarters or more where as previously they were just doing an annual self assessment. That’s a lot of extra returns to file!
Accounting is the next problem area, here are the issues
Its likely that you will use Tracking Codes or Projects to account for each property within you software. This will mean you can report by property.
Cash Accounting or Traditional
Landlords can choose to use either cash accounting or traditional accounting, Cash Accounting is the default.
Most software is not set up for cash accounting (except in the case of VAT, but thats not applicable to landlords as Residential Rent is Exempt from VAT)
Furnished Holiday Lets or Residential
Many Landlords now have a mixture and they are reported in separate sections of the Self Assessment Return.
Potentially you could EU or other Property income too, how will HMRC handle that?
These need separating within the accounting system to produce the information needed.
Jointly Owned Property
Its unlikely that a Landlord with jointly owned property would maintain two sets of accounts with 50% in each (or whatever the split needs to be), so software will need to be able to deal with this. Some Landlords may have a mixture of jointly owned and sole owned.
Rent a Room
Rent a Room can be used even by those exceeding the £7,500 limit, the balance above this level is then taxed Rent a Room – What if Rent exceeds £7,500? « Steve J Bicknell Tel 01202 025252
Lots to consider and the clock is ticking.