HMRC are trying to do something huge. They want everyone with self employed income and property income to report their earnings quarterly. Considering the difficulties of collecting the information annually this is an interesting and very ambitious plan.
They recently updated their guidance on who can do what.
Three-line accounts
If your turnover (income before expenses) is less than the VAT threshold (currently £90k) they have said that taxpayers can use three-line accounts. All that means is rather than submit full information you can tell them your income as a single figure and your expenses as a single figure. So that’s two lines. The third is your net profit. Landlords must however continue to split out finance charges / mortgage interest so technically for us it will be four line accounts.
So far so good and pretty straightforward. That said landlords with repayment mortgages could struggle to work out what the interest element of their mortgage payments are on a quarterly basis as many use their annual statements to obtain tax return figures at the moment.
Jointly Let property
A source of concern for many as the guidance has not always been great in this area but now some things have been cleared up.
For starters they have confirmed landlords should only declare their own share of income and expenses.
Seems easy enough but I know of a lot or people with joint properties where one person essentially manages the property and keeps all of the books and records. They then share the information for tax return preparation. Those people will now have to start sharing quarterly. The others, who until now have remained passive, will of course have to get set up for MTD to start reporting.
There also seems to be a suggestion that landlords can report income quarterly but catch up with their expenses annually. As the MTD system will give an indication of tax liabilities I really cannot see why that would ever be attractive.
Summary
If landlords take advantage of all of the easements announced by HMRC to date they would need to:
- make a single “income” entry into their digital records each quarter for their share of the property income received
- report this figure only in their quarterly updates, and
- enter a single figure for their share of the expenses at the end of the tax year.
If income is over the VAT threshold then it would look much the same but with a breakdown of expenses per expense type each quarter.
What would I recommend?
For all but the smallest of landlords (those with less than say £20,000 of rent coming in, I would just get on with it. The software is getting to the point where when used properly it would actually be more work to try to report only partial figures. I’ve also long said that the advantages of using good software are not just tax based. Having a good, up to date, system will allow you to spot things far quicker within your portfolio and give you far better financials to make decisions with.