The Government announced in the Spring 2015 Budget that self assessment tax returns are to be abolished with the introduction of "Making Tax Digital". In its place, each individual has been given a digital Personal Tax Account with the expectation of the self employed and landlords, whose gross turnover/rents is £10000 or more per annum, to keep their records digitally (it has been confirmed compatible integrated spreadsheets are acceptable) and upload their income and expenditure to HMRC on a quarterly basis. For jointly owned rental property, the £10000 threshold relates to the "letting business" not each individual landlord.
Resulting from an initial announcement of a 12 month delay, the intention was for those under the VAT threshold (currently £85000 for 2017/18) to have a start date of 6th April 2019 and for those over this threshold having a start date from 6th April 2018. However, another announcement by the Treasury on 13th July 2017 has now delayed this further for all businesses and landlords in respect of income tax and national insurance until at least 6th April 2020. Testing has already started on a voluntary basis from the 2017/18 tax year. The one exception to all this, is that businesses who are registered for VAT and have a turnover above the VAT threshold will be required to make quarterly VAT returns only and keep records digitally using MTD compatible software from 1st April 2019.
HMRC have indicted free software and apps will be available for those under the VAT threshold and who do not employee anybody and use the “cash basis” of reporting income and expenditure (ie income received less expenditure incurred in the tax year, rather than income and expenditure relating to the period concerned, which was the statutory basis up to 5th April 2017). However, commercial software may be more appropriate if this is to link with accountant’s/tax adviser’s third party software.
For landlords, the “cash basis” will become the default position to calculate the profit/loss, provided the gross rental income in the tax year is less than £150000. This came into force from 6th April 2017.
HMRC have already set up Personal Tax Accounts for each UK taxpayer and to access yours it is necessary to first of all go through a verification process online. You will need to have a passport or photographic driving licence, debit or credit card and a smart phone or email account.
For landlords, the first quarterly report will therefore not be required until at least the quarter ending 5th July 2020. Reporting has to be made within 30 days of the end of the quarter, otherwise penalty points will accrue leading up to a potential fine, although HMRC have indicated this will not apply for the first year until the new system has “bedded in”.
Some income, such as earnings, pensions and bank/building society interest which HMRC are automatically advised of, will already be pre-populated in the Personal Tax Account. In time, letting agents will also be required to report rental income and expenditure quarterly for all their landlords.
However, it is likely that some fine tuning at the end of each tax year will be required eg for landlords, ensuring the mortgage interest is correctly claimed under the new arrangements which start with effect from 6th April 2017 or declaration of other income eg dividends etc. Therefore, a final (6th) declaration (ie after the 4 quarterly returns and annual reconciliation) will also be required by the familiar 31st January deadline or 10 months after the end of the tax year, whichever is the sooner.