The combination of Making Tax Digital (MTD) and Income Tax Self Assessment (ITSA) and the requirements it places on Landlords has once again brought the subject of incorporating your property portfolio to the fore.
With the introduction of MTD for ITSA from April 2024, the impact on everyone is going to be significant but many Landlords in particular will be impacted. MTD for ITSA is sure to come as a shock to manyindividuals that privately own rental property as income from furnished holiday lettings, commercial property and non-UK properties is included too.
People who have inherited a single property they offer for rent may not even be aware
that, in the eyes of HMRC, they’re running a business—and that MTD for ITSA mayapply to them.
Many smaller landlords tend to keep basic accounting records, if they keep any at all. Some may not even declare their income, while others may not correctly understandhow property rental income is taxed.
Whilst there will be many changes taking place, a recent report from SAGE explained all the changes and summarised them well.
For those within its scope, the rules of MTD for ITSA are as follows:
• Software compatible with MTD for ITSA must be used for accounting, relatingto income tax.
• The company/individual must register for MTD for ITSA before 6 April 2024. If you are already registered for Self Assessment, or have already registered for MTD for VAT, you will not betransferred across automatically when MTD for ITSA begins.
• You will no longer need to send a Self Assessment return for income tax,although one might still be needed in some cases to report other kinds of income outside the scope of MTD for ITSA.
• You must provide HMRC with quarterly updates using software that details all property income (any sole trader business will also require aquarterly update of its own).
• By 31 January following the end of the tax year, you must:
- use software to provide HMRC with an end of period statement (EOPS). This will detail all your property income and allowable expenses. If you own a sole trader business then you will also need to submit an EOPS for each.
- use software toprovide HMRC with a signed final declaration of all your income. If you have any income from a sole trader business, then this will need to beincluded too.
- to pay the balance of any tax and National Insurance contributions due.
Whilst this process may seem complex, with the right systems it is straight forward and is something we can easily help you with.
The whole process of MTD for ITSA raises the question of incorporating your property portfolio into a limited company. If you are able to do this, the MTD for ITSA requirements may not be applicable and this will enable you to be more tax efficient managing your properties.
To find out more about MTD for ITSA, or how to incorporate a property portfolio contact us or call David White on 020 8863 4566.