Under the original plans, landlords with rental income (or combined rental and business income) of more than £10,000 would have needed to comply with Making Tax Digital for Income Tax (MTD for ITSA) from 6 April 2024.
However, the start date has now been delayed, and its introduction is to be phased in.
Phased introduction
MTD for ITSA will now apply from 6 April 2026. However, from that date, it will only apply to self-employed traders and landlords with business and/or rental income of more than £50,000. It will be extended to include traders and landlords with business and/or rental income of between £30,000 and £50,000 from 6 April 2027.
Taxpayers have the option to join MTD for ITSA voluntarily ahead of their compulsory start date.
As yet, no start date has been announced for landlords with rental income (or rental and trading income) of £30,000 or less. The government have announced that they are to conduct a review into the needs of smaller businesses, particularly those whose income is below £30,000. The review will consider how ‘MTD for ITSA can be shaped to meet the needs of the smaller business and the best way for them to fulfil their income tax obligations’. The review will also inform any future roll-out of MTD for ITSA beyond April 2027.
Nature of MTD for ITSA
Under MTD for ITSA, landlords who fall within its scope are required to maintain digital records using MTD-compatible software. Landlords must also send quarterly updates to HMRC within one month of the quarter end and an end of period statement by 31 January following the end of the tax year. They must also make a final declaration by the same date.
Impact of changes
In determining whether they will need to join MTD for ITSA and when, landlords must consider not only their rental income, but also any income that they may have from self-employment. It is their total trading and rental income that determines their MTD start date, not just their rental income. This may mean that a landlord with low rental income will need to comply with MTD for ITSA from April 2026 if their combined rental and self-employment income is more than £50,000, whereas a landlord with only rental income which is just under £30,000 a year will remain outside MTD for ITSA.
Case study 1
James has one rental property from which the rental income is £4,000 a year. He is also a self-employed gardener, with profits of £60,000 a year. His combined trading and rental income is £64,000. He must therefore comply with MTD for ITSA from April 2026.
The start date is two years later than under the original plans.
Case study 2
Julie has rental income of £28,000 a year from letting out two properties. She is also employed as a teacher, earning £40,000 a year.
In determining her MTD for ITSA start date, only her rental income is taken into account. Her teacher’s salary is taxed under PAYE. As her rental income is below £30,000, she is currently outside MTD for ITSA. Under the original plans she would have been required to comply with MTD for ITSA from April 2024. She no longer needs to do this.
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