Those of you who keep up with all the latest tax rules will be well aware of the upcoming Making Tax Digital (MTD) regulatory changes from HMRC and will be making preparations for this biggest ever tax change.

For the 99% of landlords who prefer not to think about tax at all, this news might be worrying. You might be wondering what the new regulations are all about and how they’ll affect you.

Worry not ‒ APARI’s team of tax nerds love simplifying tax rules into language understood by real human beings. You also have a bit of time to prepare and get used to using new tax software, but more on that later.

Here’s what you need to know…

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What is Making Tax Digital?

Making Tax Digital (or MTD, for short) are a set of new regulations from HMRC designed to transition the UK to a more efficient and accurate digital tax system. Some businesses paying VAT have already transitioned to MTD and will apply to every VAT-eligible company from April 2022.

MTD for Income Tax was announced by the Government in July 2020 and will affect landlords, self-employed and tradespeople.

How to comply with Making Tax Digital for Income Tax

To meet the requirements for the MTD regulations, landlords will need to keep digital records of property-related income and expenses, submitting a summary directly to HMRC via registered tax software once every quarter.

Additionally, you will also need to submit an end of year report, finalising all accounts and other income to form your self-assessment. The right tax software will compile these reports for you, based on your digital accounts, and submit them directly to HMRC.

The result is very similar to now ‒ MTD won’t change what you need to pay or when you need to pay it. 

Key Changes: a) use MTD software; b) keep digital records and c) submit account summaries once a quarter to HMRC.

Who does MTD for Income Tax apply to?

Making Tax Digital for Income Tax is for UK landlords who usually submit a Self Assessment tax return. It is a requirement for anyone with more than £10,000 of combined turnover from business and property income. 

When does Making Tax Digital for Income Tax come into effect?

Making Tax Digital for Income Tax comes into effect from the 6th April 2023. 

It’s possible to voluntarily register for MTD for Income Tax before then, which will allow you to get ahead of the game and familiarise yourself with the MTD process. Don’t worry, you can still revert back to a standard tax return if you want.

Using tax software now could also save you money on accounting fees and provide you with a summary of your profit and loss as well as real-time estimates of your tax liability.

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Understanding the MTD process

While the process for MTD is roughly the same for everyone, every piece of MTD software will work a bit differently. To give you an idea of what to expect, here’s how APARI MTD software works:

Step 1: Keep digital records

You will need to record relevant transactions, both income and expenses, in your MTD software. Some software, like APARI, allows you to upload bank statements or your existing spreadsheet to help automate and speed up the process. You can then tag the relevant transactions and assign them to your properties.

Step 2: Sign up for MTD

Complete the sign-up process on the HMRC website and enter your Government Gateway ID into your tax software. This allows you to submit data to HMRC securely via your software. 

Step 3: Receive reminders about key dates

APARI will remind you about key dates, such as your quarterly and annual tax submissions, as well as insurance and tenancy renewals.

Step 4: Submit your tax information to HMRC directly from APARI

Your tax software should automatically prepare your quarterly summaries from your digital records, ready to review and submit directly to HMRC. You’ll get an immediate confirmation from HMRC.

Then, at year-end, you finalise your property income, add in any other tax information and complete a legal declaration that all information has been submitted. Finally, you need to pay your tax bill by the deadline (APARI will remind you). You should have an accurate estimate of your tax liability in advance, so there shouldn’t be any nasty surprises.

And that’s it! I know it probably sounds complicated just now, but with the right tax software it should make accounting easier, faster, cheaper and more accurate.

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