So what's it all about?
Landlords within the scope of MTD will be required to use approved software to:
- Keep digital records of their rental income and expenditure.
- Submit quarterly updates of such income and expenditure to HMRC.
- Prepare and submit an end of period statement (EOPS) after the end of the tax year.
- Use digital links to transfer any information between the software used to achieve the above.
Once all this is sorted a “final declaration” will be needed, enabling the individual’s tax liability for the year to be calculated.
So who’s caught?
In a word all landlords unless they are specifically exempted. The main exemptions are:
- Digital exclusion, an exemption which HMRC may grant to individuals where it is not reasonably practicable for them to use digital tools due to age, disability and other genuine reasons.
- Income exclusion, where the individual’s total trading and property income is no more than £10,000 a year.
Exemptions also apply to trustees, executors & administrators and a few other uncommon situations.
General partnerships will not be caught until 6 April 2025and other entities will be brought into the MTD fold later.
What about jointly owned property?
The jury is still out on this one, with HMRC liaising with professional bodies. However, if a husband and wife own a property 50:50 which has a total annual rental income of £15,000 they will each be deemed to have £7,500 rental income and will be exempted from MTD if they have no other property or trading income.
Will property agents do the job?
The short answer is “no”. Their role is to manage the letting of property and account to landlords for all income and expenditure in the letting period. The last thing they want to do is to get involved with HMRC-- that’s an accountant’s job!
What about Maud?
Maud is in her early 80s and derives a rental income of£40,000 a year from the letting of a shop in South London, bequeathed to her by her father. Maud has no IT skills at all and decides to sell the shop to avoid the MTD problem. Fortunately, she discusses the problem with her solicitor who enters a claim to have Maud digitally excluded from MTD. HMRC accepts the claim and Maud continues to record rental income and expenditure on a sheet of paper once a year, her accountant doing the rest.
What about Horace?
Horace is an IT whiz kid. He owns a number of houses and shops which produce an annual rental income of £95,000. He sits down with his accountant, and they look at the available software. Horace selects a package with which he feels comfortable. He will purchase this and use it to keep digital records & file quarterly updates but requires his accountant to help in making any tax adjustments and filing the end of year statement - the EOPS.
What about Daphne?
Daphne is a career girl (who also happens to own and let a portfolio of flats and garages) and is far too busy to bother with digital records on quarterly returns. So, Daphne instructs her letting agent to send copies of his quarterly statements to her accountant who agrees to create a digital record, complete all quarterly filings and the annual EOPS. Daphne receives a copy of each quarterly report although she admits she rarely looks at them!
And finally... George?
George owns and lets out a large house in North London, managing the letting himself. He is quite IT savvy but has a bit of a blind spot when it comes to dealing with HMRC. His accountant sends him a reminding email a day after the quarter end with a reminder a week later. Eventually George sends through copies of his bespoke bank statements from which his accountant creates a quarterly digital record and files the update, sometimes with only a day or two to spare. The accountant also prepares and submits the annual statement – the EOPS – and everyone is happy.
As will be evident there is a range of support which can be offered by agents in order to manage the requirements of MTD. What is critical is the setting up of a very clear arrangement between client and accountant. C & H Stedman are here to assist.