The Office of Tax Simplification (OTS) is an independent office of H M Treasury, and they have recently published a report on the UK taxation of income from residential properties. The report can be viewed here, but we set out The OTS’s views of Making Tax Digital (MTD) for landlords and await further responses on this subject.
However, it will be interesting to see what responses are forthcoming, given the fact that the OTS will be closed when the next Finance Bill receives Royal Assent. The OTS points are all very valid, and in particular, a review of the gross rental income threshold (currently planned at £10,000) would be welcome.
What are the OTS’s views of jointly owned properties?
We understand that nearly half of landlords will be filing under MTD in respect of jointly owned properties. It is not clear how this will be possible under the current proposals given that only one party can keep records.
The OTS recommends that HMRC should establish a system to deal with MTD for Income Tax for jointly owned properties, for example, by making a jointly owned property the MTD filing entity.
How will MTD work when multiple parties are involved in providing landlords with information?
Landlords may rely on multiple parties to provide information and potentially to support submitting reports.
The OTS has said that HMRC needs to be able to authorise MTD for Income Tax filing agents alongside tax agents. This is required because letting agents and bookkeepers will maintain digital records and may support quarterly submissions on behalf of some landlords. Specific professional standards and responsibilities will be needed for MTD for Income Tax filing agents.
Should the gross rental limit for MTD be increased for landlords?
The gross rental limit for being required to adopt MTD for Income Tax has been set at £10,000. The evidence suggests that a landlord with such low gross rentals will have a modest net profit, if any. The OTS acknowledges that, although there would be an Exchequer impact on raising the threshold, this could be outweighed by lower customer costs, higher levels of compliance and better taxpayer and agent engagement.
The OTS recommends that HMRC consider increasing the minimum gross income threshold for MTD for Income Tax for landlords above £10,000, at least for the medium term.
What are the OTS overall recommendations for MTD for landlords?
The OTS recommends that MTD for Income Tax should not apply to landlords until these major points have been dealt with by HMRC and by a range of software providers. Time will be needed to test new systems before adoption.
We will be happy to discuss your property business and MTD with you and the software we offer for our landlord clients. Find out more by watching this short video: Hammock in 60 seconds.
First Published 2 November 2022
Last Updated 2 November 2022
2 November 2022
First published.
Find out more about Liz Higgins