You’ve probably heard by now that the tax system is undergoing a major digital transformation that is going to affect landlords. As part of HMRC’s Making Tax Digital (MTD) initiative, digital tax reporting rules are being extended to individuals who earn income from property. Known officially as Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), these new rules will significantly impact how affected landlords keep records, report income, and interact with HMRC.
Whether you’re a full-time landlord or simply letting out a second property, understanding what MTD means for you is essential. In this article, we’ll explore the changes, the key dates you need to be aware of, and how an accountant can help make the transition as smooth as possible.
What Is MTD for Income Tax?
Making Tax Digital for Income Tax is HMRC’s plan to gradually replace the traditional self-assessment tax return with a more frequent, digital system. Instead of submitting one tax return each year, landlords will be required to keep digital records and submit updates to HMRC on a quarterly basis.
This move is designed to improve accuracy, reduce errors, and provide taxpayers with a clearer picture of their tax position throughout the year. For landlords, it marks a fundamental shift in how rental income must be reported and managed.
Who Will Be Affected by MTD for Landlords?
Since April 2026, MTD for Income Tax applies to individuals with a combined gross income of more than £50,000 from self-employment and property. This means that if you receive income from one or more rental properties – be that residential, commercial, or furnished holiday lettings – and your total income from those sources exceeds the £50,000 threshold, you need to follow the new MTD rules.
It’s important to understand that the threshold is based on gross income, not profit. So, even if your rental profits aren’t that large, you could still fall within the scope of MTD if your rental turnover is high.
If you earn under £50,000 from your rental income, you won’t be affected just yet. However, it should be noted that the threshold lowers to £30,000 from April 2027 and to £20,000 from April 2028, so it’s a good idea to start preparing now anyway.
What do Landlords Need to Do to Comply?
The government has laid out a phased approach to rolling out MTD for Income Tax. The new rules became mandatory in April 2026 for individuals with gross income over £50,000. A year later, from 6th April 2027, the rules will also apply to those earning over £30,000 and £20,000 from 6th April 2028.
HMRC will base your requirement to use MTD based on the prior year’s turnover figures and will auto enrol you for MTD if this exceeds the threshold. There is however limited exemption; for example, if you are ‘digitally excluded.’
Once you meet the qualifying threshold, you’ll need to start submitting quarterly updates to HMRC and you have one month and 7 days following the end of the quarter to make the submission. Although HMRC have advised that they will not be applying penalties for late submissions for the 2026/27 tax year, from 2027/28 onwards HMRC will be applying a points-based penalty regime, with a penalty point applied for each missed deadline and a £200 penalty if you reach 4 penalty points.”
Following the end of the tax year, you will then need to add any additional sources of income and submit a final declaration, equivalent to the self-assessment tax return, in line with the usual deadline of 31st January following the end of the tax year.
This may sound like a lot, but with the right systems in place, it should easily become part of a regular routine. You may even find that the increased visibility over your finances is helpful.
How an Accountant Can Help with MTD
For many landlords, the thought of switching to a new digital reporting system is understandably daunting. The good news is you don’t need to navigate these changes alone. One of the most effective ways to ensure compliance and avoid costly mistakes is to work with a qualified accountant. With most tax experts, you’ll find the benefits go far beyond basic reporting.
An accountant can help you choose and set up the right MTD-compatible software for your needs, ensuring it’s configured correctly to capture all relevant income and expenses. They can also manage your quarterly submissions on your behalf, reviewing your figures for accuracy and spotting any issues before they become problems.
More than that, an accountant can provide tailored advice throughout the year, helping you with everything from tax efficiency and allowable deductions to long-term planning. With MTD providing more frequent insights into your financial position, your accountant can offer more timely support and strategies to reduce your tax bill legally.
Perhaps most importantly, working with an accountant can reduce your exposure to penalties. Having an expert on your side ensures that deadlines are met, figures are accurate, and that you’re compliant with HMRC.
Why New Landlords Should Be Prepared
As MTD for landlords will become mandatory for most over the next couple of years, now is the time to start getting ready before you establish your property income. Moving to digital record-keeping, testing software options, and speaking to your accountant about the upcoming changes can help you avoid a last-minute rush.
By getting started with an expert accounting partner, you can spread out the learning process, make informed decisions about software and systems, and work with your accountant to streamline your property finances well before the rules take effect.
Final Thoughts
The introduction of Making Tax Digital for Income Tax is one of the most significant changes to landlord taxation in recent years. For those with property income above the threshold, the days of annual tax returns are numbered. In their place, landlords must adopt a more structured approach to tax reporting.
While the transition may seem complex at first, the hope is we should see improved financial clarity which ultimately aids tax planning. And with the support of the right accountant, compliance doesn’t need to be a burden.
Get in touch
If you’re a Caroola client and the new MTD for Income Tax rules will affect you, simply get in touch with your accountant and they will be able to help guide you through the process.
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