If you’re a landlord with an annual rental income (income, not profit) of more than £10,000, then it’s essential for you to know about the important changes that the government is currently introducing into the current tax system.
As with so many aspects of life these days, British taxes are ‘going online’. According to HMRC, their chief initiative, Making Tax Digital has been designed to make it easier for individuals and businesses to pay taxes correctly and manage their affairs simply and efficiently. Below we explain some of the key things you need to know.
How is tax being made digital?
Making Tax Digital (MTD) is the UK government’s initiative to transfer the current tax system to a fully digitised online tax system. The aim is to improve the accuracy of accounting records, sent directly to HMRC, with the hope they can be viewed in real-time. This means that mistakes can be eradicated while streamlining the system. With a lesser chance of losing receipts, there’s less chance of overpaying taxes.
Self-employed businesses or landlords (excluding rented furnished holiday lettings), already have the option of using software to keep your business records in digital form, and send Income Tax updates to HMRC, instead of continuing to file paper self-assessment tax returns.
However, HMRC is phasing in the new MTD system gradually in an attempt to ensure that everyone goes digital as smoothly as possible. Legislation for VAT has been operating since April 2019, affecting VAT-registered businesses with a taxable turnover above the threshold of £85,000. HMRC plans to introduce MTD for Income Tax and Corporate Tax as well.
The earliest these changes are anticipated to activate is April 2020, although self-employed individuals and landlords can currently register for the Income Tax pilot instead of continuing to file self-assessment returns. For more information on how to register, go to gov.uk.
How will MTD affect landlords?
Once MTD is underway, the government is proposing that landlords will be required to:
- Use approved software or apps to ensure digital records are maintained
- Utilise their ‘digital tax account’ to submit information each quarter to HMRC
- Submit a declaration on the accounts at the end of each year
Although the new arrangements won’t apply to most landlords until April 2020, owners of rental properties should still start collating the details of information such as rental income, ground rent, insurance and repairs and if applicable, finance fees and mortgage interest. Landlords will also need to retain information about:
- The price paid for the property when bought (including SDLT)
- Anytime when the property was used as a main residence, including dates of ownership and letting the property
- Fees for the purchase such as those paid to the estate agent or legal company
- Any expenses incurred which improved the property as opposed to maintenance
- Legal information about the property such as how the property is owned: Joint Tenants or Tenants in Common.
Although this might appear laborious, the data entered online will also provide reports detailing your profit (or loss) per property. As a result, landlords can retain more control and be in a better position to forward-plan finances, meaning that landlords can manage cash flow more effectively.
What tax help is available for landlords?
Of course, gathering together all the necessary material for tax returns can be time-consuming. However, if you let your property through Romans using our popular Fully Managed Service, you can use our Landlord’s Account to make life easier as it provides you with instant access to all the documents you need in one place.
Your account is accessible online at any time, and among other benefits, it lists the latest news about each of your rental properties, including information on safety and recent property visits. And for tax purposes, there are monthly and annual statements.
Using Romans’ Fully Managed Service makes tax returns for your property investments straightforward, relieving you of much of the burden of the complex and time-consuming section of your tax return. Whenever you have a question, your Property Manager is just a click away.
To find out more about letting your property with Romans, and how much rental income you could earn, get a free instant valuation today – or call 0808 2569 017 to speak to a member of our team about Romans’ landlord services.
Book your rental valuation, here!