Making Tax Digital is introducing mandatory quarterly digital tax reporting for UK landlords, with rules expanding to more property owners from 2026 onward
-- Making Tax Digital (MTD) has been an ongoing transition within the UK tax system, introducing requirements for tax records and reporting to be maintained digitally rather than through manual processes. This has already affected some landlords and other self-employed professionals who are VAT-registered.
From April 2026, MTD for Income Tax has applied to landlords who reported a gross income of £50,000 or more during the 2024/25 tax period. That threshold will drop to £30,000 from April 2027, based on income in 2025/26 and £20,000 from April 2028.
The property sector accountants at James Todd & Co, an accountancy firm with extensive experience advising landlords and real estate professionals, have shared insights into what landlords need to do now that the new tax year has started to ensure they are fully compliant and understand their obligations.
The Impacts of MTD for Income Tax on UK Landlords
Traditionally, self-employed landlords would have completed an annual self-assessment return, meaning that reporting occurred just once per year. Under the MTD reforms, they must submit quarterly updates on their incomes and expenses, followed by a year-end declaration.
MTD for Income Tax is being introduced in phases, with the income thresholds falling each April, and those who reported a gross income of £50,000 in 2024/25 are required to comply with the new rules from this tax year onwards.
While the threshold applies only to property income and other sources of self-employed income, excluding any additional earnings from employment, pensions, or dividends, and does not apply to landlords trading as limited companies, more and more property professionals will fall within the scope as the thresholds drop.
The focus is on ensuring that self-employed taxpayers keep digital, rather than manual or paper-based records of their earnings and send them to HMRC quarterly, using approved software compatible with the tax office’s systems.
Reports must be submitted before the deadline after each quarter, alongside a final declaration that falls due on the 31st of January following the end of the tax year. This annual report allows landlords to include any adjustments, tax reliefs, or additional income they’ve not yet reported.
How MTD for Income Tax Affects Landlords’ Accounting Methods
Landlords who need to file reports under the MTD rules can still decide how to account for their income and expenses. Many self-employed property professionals use the cash basis, recording receipts and payments for outgoings when those transactions occur.
Larger portfolios and more complex businesses may find traditional accrual-based accounting methods more appropriate, allocating income and expenses to the period in which they were incurred, even if the actual transaction occurs before or after.
There are, though, specific rules about how certain costs, including mortgage interest paid on residential properties, are recorded, since this must be kept separate from other expenses or interest payments.
Landlords with jointly owned properties, such as spouses or civil partners who own a portfolio together, need to apportion their share of the income and then determine whether it falls within the scope of MTD, rather than assessing the total income generated by the property.
If the ownership shares of a portfolio or an individual home aren’t equal, one owner might be required to submit MTD-compliant reports before the other, which is why carefully assessing ownership structures and determining how income is allocated are important.
Exemptions, Challenges and Penalties Linked With MTD for Income Tax
MTD is widely applicable with few exceptions, although individuals who feel they would face ‘disproportionate difficulty’ in complying can choose to submit an appeal to HMRC. There aren’t any specific scenarios in which MTD for Income Tax doesn’t apply, and each exemption application is assessed on a case-by-case basis.
Examples of situations that HMRC may consider include landlords who cannot use digital reporting tools due to their location, a disability, or their age, and in some cases, trustees, non-residents or landlords who do not have a National Insurance number.
Otherwise, only landlords whose qualifying income is below the threshold are exempt.
Non-compliance can attract HMRC penalties. In the early stages of implementation, the tax authority has advised that it will take a more supportive approach as landlords adjust, but a points-based penalty system will still apply to missed deadlines.
Penalty points accumulate, with higher fines issued depending on the number issued, and after the first 12 months of the new system, those penalties are expected to become stricter.
Advice for UK Landlords Managing the Transition to MTD for Income Tax
For many landlords, changing their processes, especially if they’ve used the same systems for recording and reporting their income for many years, is one of the biggest challenges. That could mean choosing new software, paid-for or otherwise, restructuring how they keep records, and becoming familiar with quarterly reporting and the time burden it carries.
Being prepared is key, because landlords should have digital software in place before reporting deadlines loom and set aside time to compile their four-monthly reports. They may also wish to consider whether a change in accounting structures or other aspects of the business might make sense if these factors make quarterly reporting more difficult.
Professional advice can be invaluable. It can help property businesses already navigating the complexities of tax rules, financing arrangements, and portfolio ownership structures review how efficient their businesses are, where risks arise, and assess how easy or difficult compliance will be.
Although MTD for Income Tax is seen by many as an extra administrative task, there may also be benefits, especially for landlords who find it hard to monitor their income and profitability. They might look into outsourcing assistance with bookkeeping and tax returns, for instance, and quickly see why having up-to-date records makes it far easier to maintain financial oversight and make quick decisions based on accurate trading figures.
However, the compliance landscape has become more complex. With thresholds reducing and obligations increasing, landlords need to understand the requirements, have appropriate systems in place, and seek guidance where necessary to ensure they are compliant.
About the company: James Todd & Co have been providing accounting services for more than 30 years across Chichester, Fareham, and Portsmouth for businesses across the South East. Their clients trust them to provide bookkeeping, financial auditing and compliance, management accounting and financial advisory services.
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