Landlords could face monthly HMRC tax bills

Landlords could be required to pay tax every month under Treasury proposals that would calculate deductions using income declared in the previous year, the Daily Telegraph reports.

The move comes after the controversial Making Tax Digital (MTD) is already forcing thousands of property owners into a new quarterly reporting regime.

The government is consulting on plans that could allow HMRC to collect tax before some landlords and self-employed workers have received the income needed to pay it.

Monthly deductions would be based on the taxpayer’s previous annual return, with the resulting forecast liability divided into 12 payments.

Someone whose last return showed earnings of £30,000 could, for example, face deductions of £290 a month.

Planned for 2030

The system would apply to people earning above a threshold that has not yet been decided.

Labour plans to introduce the monthly payment regime from April 2030.

For landlords, the proposal could create problems where income changes sharply between tax years or varies during the year.

Voids, repairs, mortgage costs and late rent payments can all affect a landlord’s cashflow in any month.

Paying tax in poor cashflow

Zena Hanks, of accountancy firm Saffery, told the Telegraph: “For the self-employed, this is going to cause huge disruption to cashflow.

“The principles are sound, ensuring tax is paid closer to income being received, but you can’t predict future income easily.”

Self-employed taxpayers currently make payments on account twice a year, normally in January and July, based on their previous tax return.

Ms Hanks added: “It’s all very well HMRC issuing refunds, but taxpayers could have to pay more tax at a time when their business is under pressure.”

Making Tax Digital

The proposal follows the introduction of Making Tax Digital for Income Tax in April.

Eligible landlords and self-employed workers must now use HMRC-approved software and submit financial information four times a year.

The regime currently applies where qualifying income exceeds £50,000.

The threshold will fall to £30,000 next year and £20,000 from 2028.

Want landlord views

However, while quarterly submissions do not replace the annual tax return process, they do add another layer of record-keeping for landlords.

Making Tax Digital was delayed four times and ran £1bn over budget.

Its rollout has also prompted concern about whether HMRC could manage another major change to the way tax is reported and collected.

An HMRC spokesman told the newspaper: “Spreading tax payments more evenly through the year could help taxpayers avoid unexpected lump-sum bills and reduce the risk of falling into tax debt.

“We recognise that self-employed people and landlords can have fluctuating incomes, which is why we are consulting widely as we want to hear views on how potential reforms could work in practice.”