Sarah Bradford explains what the introduction of making tax digital for income tax self-assessment will mean for landlords and how this will change their compliance obligations.
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Making tax digital for income tax self-assessment (MTD for ITSA) is being introduced progressively from 6 April 2026.
It will apply initially to unincorporated landlords and unincorporated businesses with property or business income of more than £50,000 a year, who must comply with the requirements of MTD for ITSA for 2026/27 onwards. It will be extended to unincorporated landlords and unincorporated businesses with property or business income of more than £30,000 a year from April 2027. At the time of the October 2024 Budget, the government stated that unincorporated landlords and unincorporated businesses with property or business income of more than £20,000 would be brought within the MTD for ITSA net before the end of the current parliament; however, a firm start date has yet to be announced.
Landlords who fall within the scope of MTD for ITSA will need to keep digital records, use MTD-compatible software and send quarterly updates to HMRC. This will impose new compliance obligations on them and change the way they interact with HMRC.
Current compliance
Under the current system, landlords must keep records of their rental income and their expenses. However, there is no stipulation as to how these should be kept and the landlord is free to choose whatever system works best for them, be that manual records, records on a spreadsheet or records maintained via a software package. The landlord does not need to send these to HMRC (unless they are requested as part of a compliance check).
Where income from property exceeds the property allowance of £1,000 (other than where it falls within the scope of the rent-a-room scheme and is less than the rent-a-room limit), it must be reported to HMRC on the property pages of the self-assessment tax return. While the majority of taxpayers file their tax return online, a paper return can still be submitted if preferred; however, the landlord will need to contact HMRC to request one. Returns filed online must be filed by midnight on 31 January following the end of the tax year. However, where a paper return is used, this must reach HMRC by 31 October following the end of the tax year.
If the total tax and National Insurance contributions due under self-assessment is less than £1,000, it must be paid by 31 January after the end of the tax year. Once the liability reaches £1,000, it becomes necessary to make payments on account of the current year’s liability on 1 January in the tax year and 31 July after the end of the tax year, with each payment on account being 50% of the previous year’s liability. Any balance must be paid by 31 January following the end of the tax year. If the landlord has other income taxed at source (e.g., a job taxed under PAYE), payments on account are not required where 80% or more of the landlord’s total liability is collected at source.
Obligations under MTD for ITSA
The MTD regulations require an individual within the scope of MTD for ITSA to preserve their tax records electronically and submit reports to HMRC using approved software. The reports will comprise an annual report of businesses’ trading or property income, details of allowable expenditure, claims for allowances and reliefs to be submitted each tax year, and also interim quarterly reports.
To comply with the requirements of MTD for ITSA, landlords within its scope will need to acquire suitable MTD-compatible commercial software or appoint an agent to file their quarterly reports for them, although HMRC has indicated that free software will be made available which can be used by those with the most straightforward affairs (in the same way that employers with nine or fewer employees can use HMRC’s free basic PAYE tools to comply with electronic reporting obligations under real time information.
To meet the digital record-keeping requirements, landlords will need to record each individual transaction digitally. However, the supporting documentation, such as invoices and receipts, can be kept in paper format and the landlord will not need to scan these and store them digitally (although they can do so if they prefer).
HMRC is keen that landlords maintain, as near as possible, digital records in real time as this is likely to reduce the scope for error. If the landlord’s current approach is to put everything in a box file and sort it out when they do their tax return, this will necessitate a new way of working. However, under MTD, the landlord can still use a bookkeeper to create the digital records quarterly, if preferred, as part of the quarterly submission process.
The quarterly returns are simple summaries of the income and expenses which are generated from the digital records. There is no need to make accounting adjustments – this is done at the end of the tax year. The figures submitted each quarter are the cumulative figures for the year to date. This allows corrections to be made for previous quarters without having to resubmit the information for those quarters.
Following simplifications to the original proposals, where a landlord has income from a jointly owned property, they can opt not to submit quarterly updates in respect of expenses relating to jointly-owned properties and also choose to keep less detailed records of jointly-owned properties. This will minimise the in-year transfer of information needed between joint owners. However, the figures will still be needed before the tax position for the tax year can be finalised.
The quarters run to 5 July, 5 October, 5 January and 5 April, although taxpayers can report to calendar quarters instead (30 June, 30 September, 31 December and 31 March). After the final quarterly update for the year has been submitted, the taxpayer will need to make a final declaration to finalise their income for the tax year. This is like the current tax return, and it is at this stage that the taxpayer will claim reliefs and allowances and also reflect other income that they may have which is not within MTD process, such as savings and investment income and income from employment. The taxpayer will also need to make a declaration that the information is complete and correct, as is currently the case on the self-assessment tax return.
It is important to note that MTD for ITSA does not change how the taxpayer’s liability is calculated, only how records are maintained and information is reported to HMRC.
Identifying the start date
For the first phase, the MTD trigger is trading or property income of more than £50,000. The relevant income will be that for 2024/25, as reported on the self-assessment tax return, which must be filed by 31 January 2026. Once the 2024/25 tax year has ended, landlords within an unincorporated property business will be able to work out if they will be within the scope of MTD for ITSA from April 2026.
It is important to appreciate that the income from different sources is not considered in isolation; where a landlord has more than one unincorporated property business or has both trading and property income, they will need to work out the total from all sources, and also their share of any income from jointly owned properties. The relevant figure is the total income before the deduction of expenses.
For example, if a landlord has income from property in 2024/25 of £35,000 and income from self-employment of £21,000, they will be within MTD for ITSA from 6 April 2026 as their total business and property income is £56,000; it does not matter that individually, their property income and business income are both less than £50,000. Once within MTD for ITSA, the taxpayer must remain in it, even if their income falls.
MTD for ITSA pilot
To ensure that the systems work correctly from April 2026, HMRC is running an MTD pilot. Eligible taxpayers who wish to embrace MTD early can sign up for the pilot.
Details can be found on the Gov.uk website (see www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax).
Practical tip
The countdown to the start of MTD for ITSA is under way, and it is not too early for landlords to determine whether it will apply to them from April 2026 and to start preparing if it does.
