Making Tax Digital is on the way and will change the way all landlords keep their accounts and account for their tax. In this article we will consider the issues landlords need to consider and also the benefits Making Tax Digital might offer.
Making Tax Digital or MTD is all about moving taxpayers to digital records and digital tax returns. It will be mandatory for most landlords from 2024 but it is sensible to start planning for it now.
Here’s more about What Is Making Tax Digital and What Does It Mean For Landlords?
What are the disadvantages of Making Tax Digital?
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Making Tax Digital will be a shift change initially. You will need to change the way you do your accounts and account for your tax.
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You will have to use MTD compatible software to do your accounts and prepare the information for your tax returns. There will be an initial and ongoing cost for this (although some free basic MTD software packages are available).
Paper accounting will not be possible. Spreadsheet-based accounting may still be possible but may not be ideal. If you currently use accounting software it may need to be upgraded.
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You will have to work digitally. Financial information will need to be submitted to HMRC directly from your accounting software. It cannot be simply ‘typed in’.
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Figures submitted to HMRC must be supported by an audit trail back to the original transaction. Your systems will need to support this.
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Your accounting processes will need to change from an annual (or perhaps irregular!) basis to a quarterly and annual one. MTD requires quarterly submissions of information as well as an annual one.
It won’t be possible to leave doing your accounts until the end of the tax year. (Although no longer having a last minute rush/panic could be seen as an advantage!)
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MTD may expose errors or poor accounting practice which will need to be corrected.
What are the advantages of Making Tax Digital?
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There are likely to be savings in time, money and effort with an MTD-based system. Figures will need to be entered once only. Everything will be calculated automatically for you. All you will need to do is check your figures and click to submit them quarterly/annually.
You will be able to dispense with paper records and cumbersome spreadsheets if you wish to.
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The time saved on admin. and accounting can be used more productively. For example, you will have more time to spend on managing your properties or researching new investments.
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Your accounting and reporting should be more accurate. It will help avoid errors which take time to find and correct.
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You could potentially even save tax. For example, by ensuring all allowances are fully and correctly claimed. It could also save you having to pay penalties for making mistakes.
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There could be benefits from upgrading your accounting software to a new MTD compatible package. (This is particularly likely to be the case if you use outdated software, spreadsheets or partly/wholly paper systems.)
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You will be able take advantage of new tech. For example, Open Banking. Open Banking will make it possible for transactions to be automatically lifted from your bank statements and recorded in your accounts with no work needed on your part.
Here’s more about How Open Banking Can Save Time, Money And Make Landlords More Efficient
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Making Tax Digital will have advantages for the Government too. A report from the National Audit Office suggests that an extra £2.9 billion revenue will be raised by 2027-28.
While some may feel that Making Tax Digital provides an unwelcome burden for landlords it is important to recognise that it offers some benefits too. Landlords should be able to maximise those advantages and minimise any possible disadvantages by starting to plan for Making Tax Digital now.
Now could be a very good time to explore what PaTMa Property Manager has to offer. Amongst its many other invaluable features PaTMa is a simple and time saving way to store your property accounts and generate your tax return figures automatically. PaTMa will be MTD ready in early 2022 so will be able to help make your transition to MTD easier.
You can find out more about PaTMa Property Manager and take a free trial here.
This article is intended to be a general explanation of Making Tax Digital and not financial or tax advice. If you have any specific concerns about how MTD will affect you or your business it is advisable to take advice from a financial adviser or accountant.
