Sarah Bradford explains how making tax digital for income tax self-assessment will affect landlords and outlines some simplifications announced at the time of Autumn Statement 2023.
Making tax digital for income tax self-assessment (MTD for ITSA) is part of the government’s tax administration strategy.
Under MTD for ITSA, businesses and landlords will be required to maintain digital records and use compatible software to submit updates to HMRC each quarter.
False starts
The start date for MTD for ITSA has already been delayed. It was originally to apply from 6 April 2024 to unincorporated businesses and unincorporated landlords with business or rental income of £10,000 or more. It is now due to come into effect from 6 April 2026 for unincorporated businesses and unincorporated landlords with business or rental income of £50,000 or more. It will be extended to unincorporated businesses and unincorporated landlords with business or rental income of £30,000 from 6 April 2027.
Following a review of the impact of MTD for ITSA on small businesses, it was announced at the time of Autumn Statement 2023 that MTD for ITSA will not yet be made mandatory for businesses and landlords with business or income below £30,000; however, this decision will be kept under review. Landlords and businesses whose income is below the mandation threshold can, if they wish, join MTD for ITSA voluntarily.
Partnerships are not currently within MTD for ITSA, although the government remains committed to the future introduction of MTD for partnerships.
Determining your MTD start date
MTD for ITSA only applies to unincorporated landlords – corporate landlords pay corporation tax rather than income tax on their rental profits and, as such, remain outside the scope of MTD for ITSA.
The trigger for MTD for ITSA mandation is total business and rental income. Where this exceeds £50,000, the start date is 6 April 2026, and where this is below £50,000 but at least £30,000, the start date is 6 April 2027. Once within MTD for ITSA, the landlord must remain within it, even if their income falls below the mandation threshold.
Qualifying income is trading and rental income before the deduction of expenses and allowances. No account is taken of other income that the individual may have, such as savings and investment income or income from employment.
Landlords with an unincorporated business as well as rental income need to consider their combined trading and rental income from all sources, not just their rental income. The need to take into account business income may mean that a landlord must comply with MTD for ITSA in respect of their rental income, even if this is considerably below the mandation threshold. Thus, landlords with a small amount of rental income from a single property may need to report this to MTD from ITSA from 6 April 2026 if they also have business income and their combined business and rental income is more than £50,000.
Example 1: Rental income £50,000+
Ali has a property portfolio comprising ten residential lets. His rental income is £110,000 a year before the deduction of expenses. He has no other income.
As his rental income exceeds £50,000, he is within MTD for ITSA from 6 April 2026.
Example 2: Employment and rental income
Belinda is employed as a banker. She also has an investment property which she lets out. Her rental income before deduction of expenses is £35,000 a year.
No account is taken of her income from employment in working out her MTD start date. As her rental income is more than £30,000 but below £50,000, she is within MTD for ITSA from 6 April 2027.
Example 3: Business and rental income
Carol is a sole trader who has income from her hairdressing business of £40,000 a year. She also has rental income of £12,000 a year.
As her combined income is more than £50,000, she must comply with MTD for ITSA from 6 April 2025 in respect of both her business income and her rental income, regardless of the fact that individually the income from each source is less than £50,000.
Example 4: Residential and holiday lettings
David has a residential let from which he receives rental income of £15,000. He also has two holiday lets, from which he receives rental income of £11,000 and £12,000 respectively.
His total rental income is £38,000. He must therefore comply with MTD for ITSA from 6 April 2027.
Example 5: Trading income plus low rental income
Ella has trading income of £60,000 from her personal training business. She also receives rental income of £5,000 from letting out a studio flat.
As her combined business and rental income is more than £50,000, she must comply with MTD for ITSA from 6 April 2026 in respect of both her business and rental income, despite her rental income being very low.
Example 6: No compulsory MTD mandation
Frank is retired. In addition to his state pension, he receives rental income of £20,000 from a residential let.
As his rental income is below the mandation threshold of £30,000, he does not need to comply with MTD for ITSA but can do so voluntarily if he wishes.
As these examples demonstrate, MTD may impact landlords with a small amount of rental income from as early as April 2026 if they also have a source of trading income. It is important to use combined business and rental income to determine your MTD for the ITSA start date – you cannot consider rental income in isolation.
jointly owned property
Where property is jointly owned, the landlord’s share of income from the property will be taken into account in working out their qualifying income.
To make it easier for landlords who own property jointly to comply with the requirements of MTD for ITSA, some simplifications were announced at the time of Autumn Statement 2023. Landlords with jointly owned properties will be able to:
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choose not to submit quarterly updates of expenses which relate to jointly owned properties; and
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keep less-detailed records in relation to jointly owned properties, simplifying the transfer of records between the joint owners.
However, landlords will still need to submit details of expenses incurred on jointly owned properties before they can finalise their tax position for the tax year.
Quarterly statements
Under MTD for ITSA, landlords and traders must provide quarterly updates to HMRC using MTD-compatible software. The updates are a simple summary of income and expenditure kept in the digital records; there is no need to make accounting adjustments to those records. Where MTD-compatible software is used, the submission of the quarterly update should involve little more than a ‘check and send’.
Landlords and traders with income below the VAT registration threshold of £85,000 can continue to use three-line accounts within MTD for ITSA.
To allow changes or to correct errors throughout the year, it was announced at the time of Autumn Statement 2023 that taxpayers will now be required to submit year-to-date figures at the end of each quarter rather than submitting updates covering only the current quarter. This will make it easier to amend figures for earlier in the tax year.
End of period statement scrapped
The original design for MTD also required taxpayers to submit an end of period statement (EOPS) containing a declaration that the information for the accounting period is complete and correct.
In response to feedback, the requirement to submit an EOPS is to be removed.
Agents and MTD for ITSA
Taxpayers can use an agent to comply with MTD for ITSA on their behalf.
At the time of Autumn Statement 2023, it was announced that it will now also be possible for taxpayers to be represented by more than one agent, which may be helpful if you use one agent to deal with your rental properties and another for your business affairs.
Practical tip
Landlords (or agents) will need to work out their MTD for ITSA start date taking account of their combined trading and rental income. Where their income exceeds a mandation threshold, they will need to plan ahead to ensure they are ready. This will include sourcing and authorising MTD for ITSA compatible software.
