Making Tax Digital likely to impact many more landlords than first expected
Making Tax Digital (MTD) is a key pillar of the government’s aim to modernise and automate the tax system. The government sees this as a way for taxpayers to ensure that their tax affairs are correct and up to date by requiring impacted self-employed individuals, businesses and landlords to submit quarterly tax returns. Whilst currently the tax payment dates remain the same, it is not implausible to imagine quarterly tax payments being introduced in the near future.
This regime applies to taxpayers with business and/or property income of over £10,000 per tax year. An important point to note here is that the threshold applies to gross income, and not profit. Therefore, many loss-making properties will still fall into the reporting requirements.
Interestingly, the concept of MTD was originally announced at Budget 2015 and, whilst MTD for VAT has been in place since 1 April 2019, it has taken significantly longer to establish this regime for other tax areas. However, the income threshold for taxpayers falling into MTD has remained at £10,000 since its announcement.
Given the various economic shocks that have arisen recently, from the conflict in Ukraine to the recent mini-budget announcements, we have seen significant increases to the inflation rate (currently at 10.1% and expected to rise, per the Bank of England). This has in turn lead to an increase in the base rate and knock-on effects to mortgage rates in the market, which are currently around 5% to 6% for buy-to-let mortgages and expected to rise.
This, along with general price increases, means that landlords are faced with increasing costs on their rental stock, which will force rent prices upwards. As such, there will likely be more and more landlords falling into the MTD regime who, based on turnover in previous years, may have thought that they would not be impacted. It is therefore important to review your gross income on rental properties to confirm whether you will be required to comply with the MTD reporting.
This regime applies to taxpayers with business and/or property income of over £10,000 per tax year. An important point to note here is that the threshold applies to gross income, and not profit. Therefore, many loss-making properties will still fall into the reporting requirements.
Interestingly, the concept of MTD was originally announced at Budget 2015 and, whilst MTD for VAT has been in place since 1 April 2019, it has taken significantly longer to establish this regime for other tax areas. However, the income threshold for taxpayers falling into MTD has remained at £10,000 since its announcement.
Given the various economic shocks that have arisen recently, from the conflict in Ukraine to the recent mini-budget announcements, we have seen significant increases to the inflation rate (currently at 10.1% and expected to rise, per the Bank of England). This has in turn lead to an increase in the base rate and knock-on effects to mortgage rates in the market, which are currently around 5% to 6% for buy-to-let mortgages and expected to rise.
This, along with general price increases, means that landlords are faced with increasing costs on their rental stock, which will force rent prices upwards. As such, there will likely be more and more landlords falling into the MTD regime who, based on turnover in previous years, may have thought that they would not be impacted. It is therefore important to review your gross income on rental properties to confirm whether you will be required to comply with the MTD reporting.
Adam Jefferies
Associate Director, RSM UK’s Sports & Entertainers Team
AUTHOR
Adam Jefferies
Associate Director, RSM UK’s Sports & Entertainers Team
