APARI Webinar - HMRC questions answered
On Tuesday 30th November APARI, along with our partners LandlordZone and special guest speakers from HMRC, hosted a webinar all about Tax, with a special focus on how Making Tax Digital for Income Tax will effect Landlords.
We received so many questions from our viewers, that we have had to split the answers into a series of articles! In the third and final article in the series, we have answers for all of your HMRC related questions. These questions were sent directly to HMRC, and so any answers have not been changed from their direct response.
(some questions have been edited for clarity).
The MTd basics
When do I need to sign up to MTD?
Individual taxpayers within Income Tax Self-Assessment with a turnover of £10,000 or more from the business income or income from property (or both) will be required to complete their affairs using MTD
General partnerships that earn more than £10,000 per year and have only individuals as partners are required to join MTD for Income Tax from April 2025.
Can I sign up to mtd now?
You can sign up now if:
- you are keeping digital records
- you are a UK resident
- you are already registered for Self-Assessment (SA)
- you are up to date with their tax records (E.g., no outstanding tax liabilities) - you have submitted at least one SA Tax Return
- you have an accounting period that aligns exactly to the tax year (6/4 – 5/4) - you have income from property and/or Self-Employment
To sign-up, please contact your software provider.
What does MTD involve?
MTD customers will be required to use MTD compatible software to maintain digital records and submit quarterly updates to HMRC. They will also need to provide an End of Period Statement and Final Declaration instead of submitting an SA return.
Is it just my property income that I need to report through MTD?
Mandated income
As part of Making Tax Digital (MTD) for Income Tax, customers will be mandated to report their self-employment business income and/or their property income when their total income from these sources exceeds £10,000. A taxpayer's qualifying income for MTD for Income Tax is their gross income or turnover in the tax year/basis period.
Only customers with relevant business and/or property income will be mandated to sign up to MTD and meet MTD requirements such as digital record-keeping and quarterly updates. However, it will be possible for customers to declare other sources of income e.g. savings income as part of their end of year reporting. It is not envisaged that other income sources will be mandated.
Non- Mandated income
Income other than self-employment income and property income is not mandated to be reported through MTD for Income Tax but customers can opt to report other income sources, such as dividend income through the MTD system at the end of the year.
What will be reported on a quarterly basis?
MTD is designed to help taxpayers reduce common mistakes in their tax returns, which occur due to inadequate business records, simple arithmetical and transposition errors. By helping to reduce errors, MTD is predicted to deliver Additional Tax Revenue (ATR) of over £2.5bn by 2026 –27 – money which can be spent on improving public services – and will provide taxpayers with the confidence they have got their tax right first time.
How will the End of Period Statement/Final declarations work?
End of Period Statement
The process will take into account all the periodic and annual data already provided by the customer throughout the year.
Customers must make sure they are confident with the information they have provided and add any additional information they have. This is likely to include tax and accounting adjustments, allowances or reliefs. Once customers have completed this and are confident this is correct for that source of business income, they must declare it. Customers will need to submit one EOPS per relevant income source.
Final Declaration
This is the process that allows the customer to finalise their tax position for any one tax year, taking into account all sources of chargeable income and gains, whether business income or otherwise. In other words, this process brings together all the data that a taxpayer needs to provide to HMRC to reach their final tax liability for a specific year.
It is also the process by which most formal claims for reliefs and allowances and any deductions will be made, where these were previously included within a Self-Assessment tax return.
Customers will also be able to tell us at this point (subject to the existing limits) how they wish any losses available to them to be treated.
What is the income threshold for MTD and how does it work?
The £10,000 income threshold for Making Tax Digital (MTD) for Income Tax was arrived at after a long period of consultation with stakeholders and in consideration of the core aims of MTD. These include creating a more flexible, resilient and responsive tax system and minimising the tax gap caused by avoidable errors, which are especially prevalent amongst smaller businesses. The £10,000 income threshold was also chosen as this is the current level at which landlords must report property income through Self-Assessment (landlords with property income of £10,000 and traders with income above £1,000 have been required to submit returns since 2005 and 2017, respectively.
I don’t think I’m digitally confident enough for MTD etc. Is there an exemption?
Digitally excluded, additional needs and assisted digital
Customers will be able to apply for an exemption from using Making Taxc Digital for Income Tax if:
- it’s not reasonable or practical for them to use computers or the internet due to age, disability or location
- they object to using computers on religious grounds
- it’s not reasonable or practical for any other reason
They’ll need to explain how these reasons apply to their own circumstances.
If HMRC has already confirmed they’re exempt for Making Tax Digital for VAT, then they’ll not need to apply for an exemption for Making Tax Digital for Income Tax.
Apart from the groups who fall under the exemptions, there are customers who will have additional needs and those who might need assisted digital support.
The first group would include customers who may have visual, hearing, motor or neuro related needs and may require accessibility features in their MTD compatible software.
Assisted digital users are those who require further support to be able to use digital services. It's a term which describes those who may lack trust in digital services or the internet, confidence to use a digital service, digital skills or motivation to overcome these barriers on their own.
Lets talk about landlords
I’m a joint property owner – will I need to sign up?
The criteria for MTD mandation are based on the total property income and/or self employment business income that an individual or partnership receives.
In the case where a property is jointly owned and everyone receives less than £10,000 in property income and has no other property income or income from self-employment, then they will not be mandated to sign up to MTD for Income Tax.
Where a property is jointly owned and both individuals personally receive more than £10,000 in property income, then they will both be mandated to sign up to MTD for Income Tax.
In practice however, we expect that it will be possible for these customers to maintain joint digital records and meet other MTD obligations through their shared software, this will mean they will not face any additional administrative burden in comparison with partners in a partnership. We will set out further details regarding MTD requirements for joint property owners in due course.
I’m a partner in a partnership that receives property income, will I need to sign up?
General partnerships (as defined by the Partnership Act 1890) that earn more than £10,000 per year and have only individuals as partners are required to join MTD for Income Tax from April 2025. All other partnerships are not required to join MTD for Income Tax in April 2025 but will be required to join at a future date to be confirmed, these include those which have corporate partners, Limited Partnerships or Limited Liability Partnerships. Individual partners are not required to meet MTD obligations. Partnerships will however be required to declare a nominated partner, who will be responsible for ensuring the partnership meets the digital requirements and for declaring that the partnership return is correct and complete to the best of their knowledge.
Do you consider property allowances/rent a room receipt when considering the income threshold?
If a customer has property/trading receipts that fall under the thresholds for the rent-a-room scheme (£7,500), the property allowance (£1,000) or the trading allowance (£1,000) then they will not have met MTD’s income threshold and will not be required to follow MTD obligations. In those cases where a customer’s gross receipts exceed £7,500 and they choose to deduct expenses and submit a tax return, then their gross receipts will count towards the MTD income threshold. We will continue to explore how best to treat other cases and will set out further details in due course.
Are different property types treated differently: foreign property income, FHL properties etc?
Income from FHL-properties and non-FHL properties qualify for different allowances, so it is necessary for the information to be reported separately to ensure the appropriate allowances are being claimed. However, for tax purposes, an individual can only have a single property business, so there is only one EOPS to finalise the total property income received. All profits from UK land or property are treated, for tax purposes, as arising from a single business. Consequently, there is only one legislative obligation to provide a quarterly update for property income. However, where a customer has income from more than one property type, there is also a need for the income and allowances to be reported separately in quarterly updates, as above
What if I’m in the non-resident landlord scheme?
HMRC are continuing to explore how MTD for Income Tax will work for non-resident customers.
why all the changes?
Why is HMRC doing this?
MTD is designed to help taxpayers reduce common mistakes in their tax returns which cost the Exchequer over £10 billion in lost revenue in 2019-2020. By helping to reduce errors, MTD will provide taxpayers with the confidence they have got their tax right first time. MTD puts businesses on a path to further digitalisation. By paving the way to integrate tax management with a range of business processes through software, MTD can help contribute to wider productivity gains for business. MTD will deliver a better service to HMRC customers. HMRC are transforming outdated back-end systems, providing better customer interaction and guidance through prompts and nudges in MTD software, so that services are simpler and easier to access and use. But we understand that some businesses may find it harder than others to make the transition to MTD, especially within the wider environment. HMRC will work closely with stakeholders, listening carefully to feedback and working in collaboration to maintain momentum towards these changes ahead of MTD.
So, if a client hasn't provided all the purchases for that quarter, if they are added after the quarter has been submitted, we must re-submit the quarter as a whole?
You can amend your quarters during the year by making amendments to the information you have already provided and re-submitting your quarter. You will need to confirm this is correct at the point you make your final declaration.
Will registration be required for MTD for ITSA in the same way that MTD for VAT was?
Yes, there will be a sign-up process due to security and verification requirements.
Can the information be supplied monthly?
The periodic information does not need to be provided in one go. Customers can submit data as frequently as they like, for example, monthly.
Why was MTD pushed back?
In recognition of the challenges faced by many UK businesses and their representatives, as the country emerges from the pandemic over the last year and stakeholder feedback, we will now be introducing MTD for ITSA a year later, in the tax year beginning in April 2024. General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025. The date at which all other types of partnerships will be required to join will be confirmed later.
Is all of the Uk going digital from 2024 I’m In Scotland.
Yes.
Why are landlords the first to be picked for MTD?
MTD for VAT was introduced for all customers with a turnover above the VAT threshold in 2019 and will be extended to all VAT customers in 2022. MTD for Income Tax will be introduced for customers with a total income from self-employment and/or property in excess of £10,000.
We chose to mandate VAT first to ease the transition for businesses, with those already used to quarterly reporting making the change first.
Is the 10,000k limit for MTD likely to change before it goes live in 2024? This has always been the amount quoted since the birth of MTD but to my mind now doesn’t reflect the more recent rent increases especially in the south of the country.
There are no plans to change this threshold.
What is the advantage to landlords
MTD makes it easier for businesses to see and understand their tax affairs close to real time; many of the existing paper-based or manual processes are eliminated, and time spent on administration is reduced. MTD puts businesses on a path toward the considerable productivity advantages associated with the transition to more digital ways of working. Businesses operating MTD are already reporting wider productivity gains and reductions in input errors.
All that’s been said so far is about personal taxation. What about limited companies
Limited Companies won't be asked to file under MTD for Income Tax.
Digital Record Keeping
Do you need to keep a none digital copy of your digital records?
Certain transaction information needs to be retained, for example the date of a receipt or the amount. Retaining a digital or electronic copy of a receipt is an option to consider when looking at how you will keep digital records, as it means you can dispose of the paper, but it is the businesses choice.
How do I deal with non-cash items e.g. I keep a record of the visits i make to all properties and at the end of the tax year multiple miles by 45p and including this in my expenses
Information on reporting requirements will be set out in the notices in 2022.
What makes you think that landlords don't already keep digital records.
Keeping digital records is good practice and there will be many Landlords who already do keep digital records. Under MTD you will need to keep digital records and submit quarterly updates, and an End of Year return, via MTD compatible software. This could be as simple as a spreadsheet and Bridging Software, or you may find using a more sophisticated accounting package could be more beneficial for your business. That is your choice.
Why the requirement for quarterly submission?
MTD seeks to move customers’ record keeping much closer to real-time reporting. Once customers have made the transition to regularly maintaining their digital records, their MTD compatible software will automatically generate these summaries, drawing from the data in their records, allowing them to send quarterly updates to HMRC often at only the click of a button. Quarterly updates will ensure that HMRC and the Government have closer to real time data, to better inform their decision making and strengthen national resilience. Likewise, quarterly updates will also help provide many customers with a current view of their financial position. For many, this will support business planning.
If HMRC is treating landlords like a business, will HMRC start to change their review of rental income and allow rental income to count as "earned income" and allow landlords to contribute rental income into eg SIPP pensions etc
MTD for Income Tax will mean that some landlords and self-employed customers will need to meet new reporting obligations as set out in the regulations. This doesn't mean that HMRC is treating landlords like the self-employed or that property income will be treated as trading income. The suggested changes sit outside of the MTD programme's scope.
Want to know more about MTD right now?
Check out our Ultimate Guide to Making Tax Digital.
