Finance and Taxation Reform Opinion

Blog: Making Tax Digital – the latest

Written by James Card

James Card of RLA tax partner RITA4RENT on the progress of the government’s Making Tax Digital plans.

The one word that comes to mind when it comes to Making Tax Digital (MTD) is ‘delays’.

There was a delay in the original timeline of introduction, and a delay in HMRC releasing information relating to MTD for self-assessment, and yet another delay in the introduction of MTD for income tax.

This article looks at the current position and what the plans are for the introduction of MTD.

I was thinking of writing it last month, but felt it was in the spirit of the article to delay until now – and to keep an eye on the recent spring statement to see if this provided any further updates.

A Brief Recap

Making Tax Digital was first introduced four years ago in the March 2015 Budget as a way of improving the UK tax system and ultimately scrapping annual tax returns.

For individuals in self-assessment, one of the key points to note was the proposal of four quarterly submissions a year to replace the single annual tax return – something that was not universally popular.

As you will have already gathered, there have been no end of delays in terms of implementation.

At the moment, the only compulsory tax that MTD applies to is VAT but landlords need to be aware that it will – at some point – become compulsory for income tax purposes.

VAT

As of April MTD is being introduced for VAT registered businesses.

Generally, this is only compulsory for VAT registered businesses with a turnover above the VAT threshold of £85,000 (with a few limited exceptions where the requirement is deferred for six months.)

A lot of landlords, with only ordinary rental income from residential property, will not need to worry as this type of income is exempt from VAT, which would mean no VAT return is required regardless of the income level.

The landlords that it will affect are those who have furnished holiday let income or where a trade is operated.

This would typically be a hotel or a B&B.

Both types of income are not exempt from VAT but there is only a requirement to register for VAT where the turnover exceeds threshold of £85,000, or there is the option to register voluntarily.

Income Tax (and Other Taxes)

For most landlords, the position for MTD on income tax is much more relevant.

Initially, a threshold of £10,000 annual gross rent received was recommended as a limit whereby MTD would be compulsory for unincorporated landlords, but we will have to wait and see if that is indeed the case.

The big question we are being asked is when?

The last timeline from HMRC appeared to indicate April 2020 as being the earliest MTD would be made compulsory.

And although we waited with bated breath for the spring statement to update us on the current position of MTD for income tax it got no mention by the Chancellor in an altogether low-key statement.

However, digging around that same day in a written ministerial statement by the Chancellor, some further details have come to light.

This statement confirmed that MTD will not become mandatory for any new taxes, meaning that 2021 is likely the earliest date of introduction.

Of course, with other pressing matters for the government to deal with (no I won’t mention the B word!) further delays are quite possible.

The other little mention in the written statement, was that a light approach will be taken in relation to penalties in the first year of its implementation.

Conclusion?

If you are above the VAT threshold and are a VAT registered landlord because you have either furnished holiday let or trading income, you will need to ensure you are compliant with the changes.

However, for the vast majority, there are two very key questions really remain unanswered:

  • At what point will MTD become compulsory for landlords?
  • What exemption limit will be in place for smaller landlords (if any?)

At this moment, there are only indications but no certainty. No doubt plenty of landlords would like some clarity …… me for a start.#

  • To read the RLA submission to the Making Tax Digital consultation click here.
  • To read details of the Making Tax Digital proposals and findings of the Government consultation click here.

About the author

James Card

2 Comments

  • As a ‘small’ landlord I am not looking forward to MTD at all. From what I can gather so far, it means that I will end up having to pay a third party a monthly or annual subscription just so that I can make my submissions to HMRC. I currently keep meticulous records using Excel for all my properties and it has worked well since I started six years ago. Making quarterly returns is going to be annoying but ‘manageable’ . However, having to pay probably in excess of £100 pa is not.

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