Should Landlords and Letting Agents be worried about Making Tax Digital (MTD)?
Delaying the MTD
You may be aware that the new Making Tax Digital (MTD) initiative was temporarily shelved last week following the dissolution of parliament in preparation for the Election. Despite this, the vast majority are taking the view that if the Conservatives are voted back in as expected, MTD will likely make a swift reappearance. By the time we get to the end of the next parliamentary session it is quite possible that it will have made its way on to the statute books.
You could be forgiven for thinking it may take a while for this to re-appear but provided Mr Corbyn doesn’t have a magic fairy to assist him, this proposal will likely “return” sooner rather than later.
For the benefit of those who don’t know what MTD is, it’s the new proposed initiative devised by HMRC to replace the annual Tax Return or SATR system. Reporting of your income for tax purposes will change from an annual “in arrears” basis to a quarterly “as it happens” one.
According to HMRC this will have a huge number of advantages for citizens all; of course it will also help speed up the transfer of tax from our pockets to those of the exchequer.
To cut an extremely long and immensely boring story short, the plan, well up until last week at least, was for this brave new world cutting edge change to be introduced on 6th April next year (2018) for certain groups of taxpayers.
One of the first groups earmarked to be affected by this change is small landlords.
By small landlords I don’t mean those of the Tyrion Lannister variety, I mean ordinary people just like you and I who own a few residential properties, probably mostly mortgaged, which they let out to tenants.
If you have engaged a letting agent to manage the Let then you would normally wait for a few months after the end of a tax year and collate details of all the expenses incurred and rent received using figures provided by the agent. You would then either send the lot to your accountants so he can prepare and submit your Tax Return or if you are an anorak of the clever penny wise persuasion, do it all yourself.
Assuming HMRC pull a rabbit out of their hat and do get everything through ready for this MTD whatsit to start on 6th April 2018 all this will change.
From that date onwards small landlords will have to submit their accounts details on a quarterly basis.
And here’s the real cracker.
Income and expenditure has to be declared quarterly on the basis of the dates your rents are received by, or your expenses are incurred by, your letting agent NOT the date you receive it from them.
So just how efficient are the financial systems used by your letting agent and just how quickly do you think they will provide you with the details you need to get your MTD submissions in on time?
If it wasn’t for the fact that I manage all my lets myself and keep up to date records on a spread sheet I’d certainly be a tad concerned.
Of course, all this could change if the Government or HMRC moves the MTD goal posts or change the rules in the next ten months or so. It’s happened many times before and many of the financial institutions involved are convinced that the timescales proposed by HMRC are wholly unrealistic.
I for one will be interested to discover what transpires as we go through the remainder of 2017