In our January newsletter we covered the delay to Making Tax Digital for Income Tax (MTD for ITSA) under the original plans for landlords, sole traders and partnerships.
As a number of our clients are landlords we thought we would cover the changes in more detail that will affect them. There are more fundamental changes to the plans for landlords rather than just a delay in the implementation.
Initially, landlords with rental income (or combined rental and business income) of more than £10,000 would have needed to comply from 6 April 2024. However, the start date has now been delayed, and its introduction is to be phased in.
MTD for ITSA will now apply from 6 April 2026.
However, from that date, it will only apply to self-employed traders and landlords with business and/or rental income of more than £50,000. It will be extended to include traders and landlords with business and/or rental income of between £30,000 and £50,000 from 6 April 2027.
Taxpayers have the option to join MTD for ITSA voluntarily ahead of their compulsory start date.
As yet, no start date has been announced for landlords with rental income (or rental and trading income) of £30,000 or less.
The government have announced that they are to conduct a review into the needs of smaller businesses, particularly those whose income is below £30,000.
The review will consider how ‘MTD for ITSA can be shaped to meet the needs of the smaller business and the best way for them to fulfil their income tax obligations’. The review will also inform any future roll-out of MTD for ITSA beyond April 2027.
Under MTD for ITSA, landlords who fall within its scope are required to maintain digital records using MTD-compatible software.
Landlords must also send quarterly updates to HMRC within one month of the quarter end and an end of period statement by 31 January following the end of the tax year. They must also make a final declaration by the same date.
Impact of changes
In determining whether they will need to join MTD for ITSA and when, landlords must consider not only their rental income, but also any income that they may have from self-employment.
It is their total trading and rental income that determines their MTD start date, not just their rental income. This may mean that a landlord with low rental income will need to comply with MTD for ITSA from April 2026 if their combined rental and self-employment income is more than £50,000, whereas a landlord with only rental income which is just under £30,000 a year will remain outside MTD for ITSA.