If you’re a landlord with rental income (income, not profit) greater than £10,000 per annum, then it’s important you know about the fundamental changes the government is rolling out to the current tax system.
Like most things these days, British taxes are ‘going online’. Making Tax Digital is HMRC’s leading initiative, designed to make it easier for individuals and businesses to pay their taxes correctly and manage their affairs simply and efficiently. So, if you’re a landlord, what do you need to know?
What is Making Tax Digital?
Making Tax Digital (MTD) is the UK Government’s plan to migrate the current tax system to a fully digitised online tax system. The improved accuracy of digital records, sent directly to HMRC and available to view in real time, will help avoid errors and streamline the system. It means that landlords are less likely to lose receipts, and therefore less likely to end up paying more tax than is actually due.
If you are a self-employed business or landlord (excluding rented furnished holiday lettings) you already have the option of using software to keep your business records digitally and send Income Tax updates to HMRC, instead of filing a paper Self-Assessment tax return.
But, in attempt to get everyone digital, HMRC is phasing in MTD. Legislation for VAT has been operating since April 2019, affecting VAT-registered businesses with a taxable turnover above the threshold of £85,000. HMRC will eventually introduce MTD for Income Tax and Corporate Tax, too.
The earliest that these changes will be phased in is April 2020, although those that are self-employed and landlords can currently enlist for the Income Tax pilot instead of continuing to file Self-Assessment returns. Find out more on gov.uk.
What does MTD mean for landlords?
Under MTD, the government are proposing that landlords will be required to:
· Maintain records digitally using approved software or apps
· Report summary information to HMRC quarterly via a ‘digital tax account’
· Make an end of year declaration.
Though the changes won’t apply to most landlords until April 2020, if you own rental property, you should start collating the details of:
· Rental income
· Allowable costs such as ground rent, rates, insurance and repairs
· Loan or mortgage interest.
You should also keep information about:
· The original price you paid for the property (including SDLT)
· Whether any of your properties were your main residence and for which dates
· Costs such as legal and estate agent fees that were incurred in transactions
· Capital improvement expenses
· Any legal information about your properties
· Whether the properties are owned as Joint Tenants or Tenants in Common.
This might seem like a lot of hard work, but the data you enter online will also provide reports detailing your profit (or loss) per property, giving you more control and better capability to forward plan with your finances, and help you manage your cash flow more effectively.
To better understand what tax you have to pay as a landlord, we have a handy guide on key taxes for landlords.
Tax help for landlords
We know that collating all the necessary information for tax returns can be time-consuming. However, if you let your property through Leaders using our Fully Managed service, you can use your Landlord Account to reduce the workload.
Available online 24/7, your account lists the status of each of your rental properties, including information on safety and recent property visits. And from a tax perspective, there are downloadable monthly and annual statements, so the information you need is at your fingertips, any time you need it.
Also, Leaders’ landlords can take advantage of our self-assessment tax service (from just £35 per property). We will produce a full summary of your tax obligations relating to any property we manage for you, completing the complex and time-consuming parts of your tax return for your property investments.
To find out more about letting your property with Leaders and how much rental income you could earn, get a free instant valuation online today – or call 0343 253 8237 to speak to a member of the team about Leaders’ landlord services.
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