Digital Tax Returns: How Does This Affect Landlords?
Update on HMRC Making Tax Digital Changes: What This Means for Landlords
At Bowson, we’re committed to keeping landlords informed about important updates that impact your rental properties. A significant change is coming to how income tax self-assessment returns are submitted, and it will affect many landlords in Newcastle and beyond. The HMRC’s Making Tax Digital (MTD) for Income Tax initiative is set to modernise the tax system, and we’re here to help you understand what this means for you and how to prepare.
What Is Making Tax Digital for Income Tax?
MTD for Income Tax is a government initiative designed to digitise the tax system for sole traders, self-employed individuals, and landlords. Instead of submitting a single annual Self Assessment tax return, those affected will need to maintain digital records and provide quarterly updates to HMRC using MTD-compatible software. At the end of the tax year, a final declaration will replace the traditional annual return, streamlining the process and reducing errors.
This change aims to make tax management easier and more accurate, aligning the UK’s tax system with the digital economy. HMRC believes this will help landlords avoid common mistakes and save time, but it does require a shift in how you manage your records.
When Do These Changes Start?
The rollout of MTD for Income Tax will happen in three phases, based on your qualifying income (which includes rental income and any self-employment income combined):
- From April 2026: Landlords with qualifying income over £50,000 will need to comply.
- From April 2027: The threshold lowers to include those with qualifying income over £30,000.
- From April 2028: Landlords with qualifying income over £20,000 will also be included.
If your income falls below these thresholds, you won’t need to comply yet, though you can voluntarily sign up earlier to get accustomed to the system. HMRC has also indicated they’re exploring how to extend digitalisation benefits to those with incomes below £20,000, but no timeline has been set for this group.
How Does This Apply to Landlords?
As a landlord with Bowson, here’s how MTD for Income Tax might affect you:
- HMO Landlords in Newcastle: If you own an HMO (House in Multiple Occupation) or other rental properties in Newcastle, you’ll need to assess your total qualifying income. For example, if your rental income from your HMO exceeds £50,000 annually, you’ll be required to comply starting April 2026. This applies whether you manage a smaller HMO under Selective Licensing (2 bedrooms or up to two households) or a larger one under Mandatory Licensing (5+ bedrooms).
- Qualifying Income: Your qualifying income includes all rental income from properties, plus any self-employment income if you have a side business. If you jointly own a property, HMRC will assess your share of the income after expenses. For instance, if you and a partner own an HMO and your share of the rental income is £30,000, you’ll need to comply from April 2027 when the threshold drops to that level.
- Digital Record-Keeping: Starting in April 2026, if you’re in scope, you’ll no longer submit an annual tax return through HMRC’s online portal. Instead, you’ll need to use MTD-compatible software to keep digital records, submit quarterly updates, and file a final declaration at the end of the tax year. This applies to all your rental income, including from HMOs, buy-to-let properties, or furnished holiday lets.
- HMRC Communication: HMRC will begin contacting affected landlords this April (2025) to notify them of the changes. They’ll also launch high-profile advertising campaigns next year to raise awareness. At Bowson, we’re proactively reaching out to clients we believe are in scope (those with qualifying income over £50,000) to help you prepare well in advance. If we haven’t contacted you but you think you might be affected, or if you receive a letter from HMRC, please get in touch with us.
What Do You Need to Do to Comply?
If you’re a landlord who will be impacted by MTD for Income Tax, here are the key steps to stay compliant:
- Keep Digital Records: You’ll need to maintain digital records of all your rental income and expenses. This includes income from your HMO or other properties, as well as allowable expenditures like maintenance costs or licensing fees.
- Submit Quarterly Updates: Instead of one annual submission, you’ll provide HMRC with cumulative quarterly updates on your income and expenses. These updates will help HMRC give you an estimated tax calculation, making it easier to budget for your tax bill.
- Use MTD-Compatible Software: You’ll need to use software approved by HMRC to submit your updates and final declaration. If you already use accounting software, check with your provider to ensure it’s MTD-compatible. If not, you’ll need to switch to a compatible option before April 2026.
- Why This Matters Now
While the MTD changes don’t start until April 2026, preparing early is key. HMRC will review your 2024/25 tax return (due by January 31, 2026) to determine if your qualifying income exceeds £50,000, and if so, they’ll notify you that you must comply from April 2026. Getting ahead of the curve by adopting digital record-keeping now will make the transition smoother and help you avoid last-minute stress.
Final Thoughts
The introduction of MTD for Income Tax is a significant shift, but it’s also an opportunity to modernise how you manage your rental business. By keeping digital records and submitting quarterly updates, you’ll have a clearer, real-time view of your finances, and the final declaration process should be simpler than the current annual tax return.
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