As a landlord, you are responsible for recording and submitting your rental income and expenses to HMRC for tax purposes. While being a landlord does entitle you to certain tax reliefs and allowances, it can make your tax affairs a bit more complicated.
Additionally, with the coming Making Tax Digital (MTD) regulations affecting income tax, you will need to begin preparing your tax records in digital format, ready to submit via a recognised MTD tax software provider, such as APARI.
While MTD may sound complicated, it should make tax simpler, quicker and more cost-effective in the long term. Records will need to be updated at least once a quarter, improving the accuracy of information while making it easier to plan and save for your tax bill. However, since MTD will require you to submit via tax software, you may not need an accountant, saving potentially thousands of pounds a year.
At APARI, we always aim to empower our users with a clear understanding of their own tax position. We strip away all the jargon and unnecessary complexity to provide clear instructions and automated calculations, making the transition to MTD simple and hassle-free.
We appreciate, however, that the transition to MTD will still be worrying and potentially confusing and that landlords and other self-assessed taxpayers need up to date and clear information.
As a part of APARI’s effort to provide our users with all of the information they need to feel confident with their finances, we recently hosted a Q&A webinar featuring special guest speaker, Richard Fowler, Deputy Director of MTD for HMRC, speaking alongside our very own Anish Mehta, ex-HMRC staff and UK Managing Partner at APARI.
Watch the highlights on the APARI Community.
In the webinar, we covered a wide number of topics, including the soon to be released New Look APARI 2.0, as well as how the upcoming MTD for Income Tax will affect landlords and self-employed taxpayers.
The webinar also contained some great questions from landlords concerning how rental property will be affected by MTD. We thought it would be great to share with the readers of Residential Landlords, along with the answers from APARI and HMRC.
Are landlords classed as self-employed?
Obviously, this is a pretty central question. In the eyes of HMRC, property income is seen to be a form of self-employment income.
One major difference, however, is that while self-employment people need to input income from each business separately, you do not need to do this for each individual property. Instead, all property income comes under the same income “banner” ‒ i.e. your business as a landlord.
APARI actually allows you to input your income and expenses separately for each of your rental properties so that you can gain an overview of your property portfolio, and how each individual property is performing, but then submits all property-related tax information as a single business.
I jointly own a rental property with a partner/spouse/friend/relative. Currently, we calculate the property as a whole then split the totals by the proportion owned, and input these figures into our tax return ‒ how does this work with MTD?
This is one of the most popular questions we are asked here at APARI!
Making Tax Digital is a personal tax obligation ‒ this means that you as an individual are required to submit information regarding any self-employment or property income incurred during the tax year.
For jointly-owned property, you will need to split each individual transaction relating to that property rather than just splitting the total income and expenses at the end of the year. So, if you need to buy a new boiler, for example, you would each need to upload that transaction and calculate your split based on the percentage you own.
This could create a lot more work for you. However, we are working on functionality that will calculate the split for you automatically. All you will need to do is upload the transactions.
Can landlords file online without submitting through third-party software?
With the current Self Assessment system, you are able to submit your Annual Tax Return via the HMRC website. However, this will not be possible for MTD.
The quarterly transmissions will need to be submitted via HMRC-approved MTD software. That doesn’t necessarily mean you will have to fork out for software as HMRC has ensured that there are free software options, like APARI, available on the market.
One benefit with APARI is that you can go through the full MTD submission journey but still, if you wish, submit your annual summary online via the HMRC portal, in a similar way to the SA100. This will make the transition to MTD easier as you can start keeping digital records now and instantly make the switch to MTD later within the same software.
How task intensive is Making Tax Digital for Income Tax?
Although some elements may be more task intensive, MTD software will allow you to “cut corners” with some elements of data input. For example, with MTD software, you will be able to automatically fill sections of your tax return that you previously had to fill out manually, such as your P60.
If you are in employment, then HMRC will already hold details of your P60 on file, and software like APARI (as long as you are connected through your government gateway ID) will be able to automatically pull this information into your MTD tax return.
How complicated the switch to MTD will be will vary for each individual. If you are already keeping good records in a digital format, the transition to MTD with APARI should be straightforward. If your records are a bit of a muddle or you leave it to the last minute to prepare, things will be more challenging.
As you can submit both a traditional SA100 tax return and MTD tax return using APARI, it will be easier to make the switch as you can get used to the software now.
I’m concerned MTD is required to provide daily info. I wouldn’t want to upload transactions more than once a week.
MTD requires you to upload transactions along with their date, amount and category ‒ but that doesn’t mean you have to upload them on the day the transaction incurs. As long as you’re uploading them all by your quarterly deadline, you can upload transactions as frequently or infrequently as you like!
Has the MTD implementation timetable been delayed because of COVID?
COVID has affected a number of huge events in the last year ‒ the Olympics, the Euros, even Glastonbury have all been pushed back ‒ but this is not the case with Making Tax Digital for Income Tax.
MTD will officially be mandated from April 2023 ‒ put it in your diary!
Is using MTD going to increase my tax bill?
If anything, MTD may help reduce your tax bill.
Since you will need to upload every transaction relating to your property business in a timely manner, there is less chance of you missing or forgetting an expense which you could deduct against your income.
What more, by having a clearer overview of your ongoing income and expenses, you can better plan the timing of any big-ticket expenditure, helping you to maximise your tax allowances.
Do I need to have a separate bank account for my business or rental property?
The short answer is no.
There is no legal obligation for you to have a separate bank account for your self-employment or property transactions. However, we do recommend having separate bank accounts. It makes it far easier to keep track of your business transactions, especially when uploading transactions for digital record keeping.
In the near future, you will be able to connect your business account with APARI directly, allowing you to automatically pull in transactions and allocate them to your properties. So it makes sense to set up a business account now if you haven’t already.
Are my bank statements linked directly with HMRC?
While it will be possible to connect your bank with APARI’s MTD software, that doesn’t mean HMRC will have access to your accounts. They will only have access to the transactions you register in the software and submit them on a quarterly and annual basis.
Of course, you should always make your best efforts to include every relevant transaction in your MTD submissions, but the only way HMRC will be able to gain access to your bank statements is via an official audit.
Why is the threshold to register for £10,000 rather than the personal allowance amount of £12,500?
Although we can’t assume to know all of HMRC’s reasoning, we can make a fair guess.
Currently, there is an estimated £90 billion in tax revenues lost every year due to incorrect filing of various tax returns, including VAT, Corporation Tax and Self Assessment. MTD is a way of reducing this figure, by reducing the ability to make errors.
By ensuring that those earning between £10,000 and £12,500 are still completing their MTD submissions, even if they have no tax to pay, HMRC may be trying to reduce errors for these taxpayers down the road (when they may be earning more) and ensure that they have complete tax records.
If you missed the APARI webinar, and would like to watch the highlights, or read the answers to more questions, you can find everything on the APARI Community.
You can also use the APARI help centre at any time to find answers to common questions. We frequently update our help pages and community with any new information or helpful tips that can assist you in your journey for Making Tax Digital.