Making tax digital (MTD) for income tax was seemingly kicked into the long grass when it was announced that it would not come in until 2021 at the earliest. However, with MTD being introduced for VAT on 1 April 2019, expanding this to other taxes is still very much on the agenda. Indeed, last week HMRC asked for more landlords to work with them on the pilot scheme for income tax for the 2019/20 tax year.
The pilot has now been expanded to specifically cover landlords with income from furnished holiday lettings. Previously, other UK-resident landlords and sole-trader businesses were invited to take part.
Individuals will need to meet certain criteria; the most limiting one being that they cannot have any other sources of income or wish to claim tax relief on other payments.
Currently these individuals declare their taxable income via their self-assessment tax returns, which are due on the 31 January following the end of the relevant tax year and are required to retain their paper records.
Under the pilot scheme, they will keep their income and expenses records digitally (on compatible software which the individual will need to organise) and send details to HMRC every 3 months.
A final report will need to submitted after the tax year; the deadline will be dependent on the business’ year end.
For example, if the accounting period end is 5 April 2020, the four updates will be required by 5 August 2019, 5 November 2019, 5 February 2020 and 5 May 2020, with the final report required by 31 January 2021. The deadlines for tax payments remain unchanged.
The advantages of taking part in the pilot:
- The taxpayer can familiarise themselves with the system sooner rather than later – MTD is going to come in and so they can get ahead of the game.
- HMRC offered greater assistance with those that volunteered for the MTD VAT pilot and so the expectation would be that more help would be offered for this one as well.
- The taxpayer will be able to view an estimate of their tax at any time based on the information submitted – currently this is not available until the tax return is submitted.
- If the taxpayer is taxable from April 2019, it could be advisable to get involved with the new system from the start.
It’s highly likely that this pilot programme will eventually lead to an obligation on all landlords to report digitally (and perhaps pay their tax) on a quarterly basis. Landlords should be under no illusion – MTD is now a question of when rather than if.