Making Tax Digital - Impact on accidental landlords
27/10/2020 by David M Slater
From the tax year commencing April 2023 landlords that have a turnover that is greater than £10,000 will be required to report under MTD. This will mean that they must retain digital records and submit their tax returns using compatible software. One of the key impacts will be that they will be required to submit up to 5 returns per year to HMRC.
For ‘accidental landlords’ - those who didn’t buy their property with the intention of letting it out, but did so out of a change of circumstances, this could have a significant impact.
Starting off with the £10,000 minimum turnover requirement. Let us assume that an accidental landlord owns one property that they rent out. The £10,000 turnover might sound like a lot but in actual fact this would only equate to £833 rent before any deductions are made per calendar month. According to Homelet, the average UK rent stood at £987 in Sep 20. This means that the average accidental landlord is going to have to make a number of changes to remain compliant. They would have the following options:
Limit rent increases to remain under the threshold. The landlord could decide that they do not want to be presented with the additional burden of MTD. Assuming rent was below the threshold to start with they could decide to keep the property rent below the threshold on an enduring basis. This would create an artificial cap on the amount of rent that they would be able to charge.
Sell Up. This could be the final straw for some landlords who have already been stung by the section 24 restriction on mortgage interest relief. It could lead to some landlords exiting the market.
DIY. The landlord could decide that they are prepared to accept the extra workload and invest in compliant software or opt to use ‘bridging software’ which provides a digital link between records kept on spreadsheets and HMRC’s portal. Whilst this is likely to be the most cost effective way it is clearly going to increase the workload of the landlord.
Get an accountant. Despite reassurances from HMRC that costs to comply would be kept to a minimum it seems clear that the additional cost of compliant software and more frequent reporting is going to cost more. However if a landlord really values their time and wants to avoid errors then this may well be the best way forward.
Conclusion. MTD will have a significant impact on a large number of small landlords who may come to find that the additional cost and time burden put them off being a landlord for good. It could create a cap on their rent as they try to remain under the threshold or potentially push them into exiting the market. For those that remain committed to renting out the property then seeking assistance from an accountant that used compatible software could be the solution.
Have you been considering moving onto digital cloud based software? The onset of MTD could provide the ideal opportunity to make the transition. Please get in touch for a free consultation.
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