Making Tax Digital: A Guide for Buy-To-Let / Rental Property Owners
As we start a new tax year we are writing to explain the initial steps you need to take in your business/with your rental property in order to comply with HMRC’s move to Making Tax Digital, MTD, which will be phased in over the next few years.
The first affected were clients who were VAT registered, for them they have completed the transition and are currently working with the new digital compliance regulations.
The next step in preparation, the government announced that unincorporated businesses (sole traders and partnerships) will move from the current year basis to the tax year basis in order to smooth the path to Making Tax Digital for income tax.
This will standardise the tax year for all. (See not on basis period change)
In December 2022, the government announced that self-employed individuals and landlords will have more time to prepare for MTD for ITSA.
Those with annual income over £50,000 will be mandated to join MTD from April 2026, followed by those with income over £30,000 from April 2027. The government remains committed to the future introduction of MTD for ITSA to partnerships as part of its tax administration strategy.
At the same time, the government announced a review into the best way to approach the needs of smaller businesses, particularly those under the £30,000 income threshold. We still await the decision.
Read our guide to getting started below:
Step One: A Separate Bank Account
The first most important thing is to open a separate bank account for your business/rental accounts. This does not need to be what the bank would call a Business Account (unless you are a Ltd Company), it can be a personal account, used exclusively for your business/rental income and expenses.
Only and all business income and expenses should go through this account. For example, when paying for petrol, please pay separately for your personal cigarettes, chocolate bars and crisps!
You should transfer regular lump sums of money to your private bank account for your personal expenses.
If the business account is short of funds, you may need to transfer money in from your personal account. Please do not pay business expenses from your personal account.
We currently find we are having to process some client’s day to day living expenses alongside their business transactions. In the past it has been known for HMRC to scrutinise individual clients’ lifestyles to see if they are in keeping with their income. If all business transactions are conducted through the one account, they will not have a right to phish into your personal account unless they can prove a viable case of fraud. Which I am sure is not the case for our clients!
Therefore, if you are not operating through a separate bank account, now is the time to start.
Step Two: Online Banking
When setting up the account and if not already doing so, would you please learn to use online banking. Then when we request your accounting records you can download a copy of your bank statement for the relevant period in .csv format and email it to us.
If using PayPal or any other form of payment platform this should also be used purely for business and not for personal transactions.
No doubt in recent times you have become accustomed to using your contactless card for small purchases, it would help enormously if you would continue this practise as there is then a trial of expenses going through your bank and expenses do not get overlooked.
Step Three: Book Keeping Software
The next step will be to adopt a book keeping package that digitally stores the data and in some case the receipts are photographed and uploaded to avoid the need to keep paper receipts for the 6 years required time.
The aim is that you will file quarterly reports to HMRC advising of income and expenditure through a digital online portal. The statutory accounts showing all the accruals and prepayments, journals etc would then be completed at the year end and also filed with HMRC in order that your taxes can be paid.
Whilst HMRC has stated that at this moment in time they are not going to request quarterly payments, you will be allowed to voluntarily pay your taxes as you go: the detail is still being decided.
Eventually, it is possible that you will be required to make four payments per year on account of tax.
I am sure this is something they are working towards as we have already seen the self-assessment payments on account one in January and a second payment in July!
Need help with your software?
Software for landlords is not readily available at present but I am watching to find which would be the simplest and most cost effective for our landlords.
With regards to the self-employed I have managed to obtain some heavily discounted software licences and will be passing them on at the reduced rate. I will be contacting self-employed clients over the next few months with a view to adopting the new software.
If you are eager to make a start and I have not contacted you please drop me an email. A willing client is always better than one who has to be coerced.
Unfortunately, this is not our decision and something we have had to work hard with to change our working procedures and spend the time necessary in assisting clients with the transition. As a result, we are requesting that clients assist us with enabling us to stagger this process.
Please do not be afraid of technology, most of you use a smart phone and that is a good start for photographing and uploading receipts. There are real benefits for keeping records in real time rather than a box of receipts to be delivered to us at the year end.
By starting to prepare early we will be able to take the steps slowly and you can do as much of the actual book keeping as you wish or you could just upload the receipts and the bank and let us do the rest. Its up to you as an individual.
The software providers have said they will run some interactive online webinars to assist clients with the transition. It would be better to start now as you commence a new accounting year than to get half way through the year and have to upload 6 months of records.
