Landlords, are you ready for Making Tax Digital?

From April 2024, Landlords earning over £10,000 a year from their rental properties will have to keep business records and send Income Tax updates to HMRC digitally. While that may sound daunting, Hammock is here to help – here’s everything you need to know in advance:

What is Making Tax Digital?

Under the new rules, many landlords will need to keep their income tax records digitally and send quarterly and annual income tax filings to HMRC. These will have to be in a format compatible with HMRC’s Making Tax Digital portal.

All landlords with an annual turnover of £10,000 and above from their properties will be required to submit digital tax returns under the new rules. Be aware: the £10,000 figure is your taxable turnover, so you may be caught by the new rules even if you are (or feel you are, at least) earning less than £10,000 p.a. from your property.

The new returns include four quarterly returns and an end of year final declaration showing any reliefs or allowances. This final declaration replaces the traditional self-assessment. Landlords are to submit their final declaration after the end of the tax year it applies to and pay any tax they owe by 31st January the following tax year.

Depending on your viewpoint, this could all be good or bad news. Though there are now five returns to submit each year, you will be submitting the same information as you have previously and spreading this out over the year. This may: A) encourage more consistent bookkeeping and B) help you identify any discrepancies, shortfalls or other issues before they are exposed to HMRC.

Is Making Tax Digital compulsory for landlords?

In short, yes. If your taxable turnover from your property is £10,000 or more p.a., you must sign up and submit digital returns from your next accounting period starting in April 2024.

You can also choose to voluntarily sign up in advance of the deadline.


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Why is it important to get right? Deadlines and penalties

There are two new sanctions systems included in the Making Tax Digital implementation: one for late filings and a second for late payments.

Late filings

Each late filing will incur a penalty point for the filer. You will be liable for a fine if you file two annual returns late or if you file four quarterly returns late:

Filing periodPoints penalty threshold
Annual2 Points
Quarterly4 Points 

A penalty of £200 may be charged by HMRC once you reach these thresholds, with every subsequent late filing also incurring a penalty.

Points are reset to 0 after specified periods of consecutive on-time submissions:

Filing periodReset period
Annual2 filings
Quarterly4 filings

Late payments

There are two aspects to the late payments sanctions regime.

A 5% penalty arises 30 days after the payment is due. Penalties may be removed where the payment is made within 15 days of issuance and, where action is taken between 16 and 30 days late, penalties may be halved.

Once the payment is 30 days late, an interest calculation will apply to the late payment and additional penalties will accrue over time.

Where a late payer presents a reasonable excuse for late payments, there will be relief and/or time to pay arrangements available.

When does Making Tax Digital come into force?

If you are a landlord with an annual turnover of £10,000 and above from your properties you must be ready to submit digital returns from April 2024. It is critical that you are ready in time and an orderly transition will require a significant amount of preparation.

A second word of warning – whatever solution or system you land on to submit your digital returns must be compatible with HMRC’s requirements. It would be an immense shame to invest time and effort in a system that doesn’t meet the standards.

Can Excel be used for Making Tax Digital?

If you are using excel spreadsheets to maintain your books and records, sorry, but we have bad news for you. Your records must now include submissible quarterly summaries as well as year-end. Unless you utilise third-party software or plug-ins, spreadsheet accounts will struggle to consistently maintain and produce the filings you need to submit.

Therefore our very first word of advice would be this: figure out how you are going to produce the filings you need to submit once Making Tax Digital goes live, whether that is through the use of accountants, third party accounting software, arduous work in Excel. Stay ahead of the crowd – it will come round sooner than you think!

How Hammock can help

Hammock is here to help in a couple of ways. How exactly we can best assist with this transition depends on your set-up.

Hammock allows you or your accountant to view and amend your books and records within the platform – all the data needed for your filings can be recorded in Hammock. If you have accountants who are already responsible for your tax filings, you can provide them access to your Hammock account (find out more information on how to do this here) to allow real-time visibility and collaboration when submitting your returns on your behalf.

If you will be relying on your accountants for your digital filings, we would recommend you speak to them now about their current and future capabilities. For example, they may have clients who are already filing digital VAT returns, which will give them a degree of familiarity with HMRC’s systems, or this may all be news to them as well…

For those who file their own taxes, we are still here to help! If you would prefer to prepare and submit your digital returns personally you can still quickly and easily export the data you require from Hammock. Hammock will be able to provide your quarterly and annual data in a HMRC-friendly format for submission.

For more information or if you have any questions just hit the chat button in the bottom right corner of your screen or email us at [email protected].

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