Landlords face higher costs with Making Tax Digital and need to prepare

Landlords face extra costs and administrative burdens under Making Tax Digital (MTD) but they need to start preparing now, claim experts.

In an exclusive video interview with Property118, accountants Simon and Louise Misiewicz warn in the short term, landlords will face frustration and financial penalties if they file late.

Under the controversial scheme, from April next year, landlords earning more than £50,000 will be required to keep digital records and submit quarterly updates to HMRC using authorised MTD-compliant software.

Landlords earning between £30,000 and £50,000 will join the scheme in April 2027.

Landlords will face extra costs and administrative burden

The government claims Making Tax Digital will “transform the way tax is managed” and place businesses and landlords “on a digital footing, preparing them for the future and giving them the tools they need to succeed in an increasingly competitive landscape”.

However, Simon says the reality is likely to be very different and landlords will face extra costs and administrative burden.

He explains: “From my perspective, we have to think about the reality. There’s going to be an extra cost if you use an accountant or software, and extra time because you’ll need to organise your receipts more carefully than before and then communicate all of that with your accountant.

“There’s also an emotional factor. People will say, ‘What’s the benefit to me? There isn’t one,’ and that’s something everyone is going to have to contend with”.

Mr Misiewicz continued: “The headlines you might see in the press point to more hard work, and I couldn’t agree more. There are four extra sets of reports to complete. If you’re self-employed and a landlord, you’ll need a bookkeeping system for your self-employment activity and another for your rental income.

“That’s eight quarterly returns, plus two year-end adjustments and a tax return, 11 submissions in total. For many people, it’s going to be extremely frustrating.”

Despite, the government claiming Making Tax Digital will help landlords and businesses, Simon says this is not the case.

“There’s no real benefit beyond maybe streamlining some of the work you already do,” he says. “Does it help with tax returns and submissions? The truth is, I can’t see how.

“There’s no advantage for the individual in submitting quarterly returns, because HMRC doesn’t do anything with them until the end of the year. You don’t pay your taxes any earlier, and there is no real cash-flow benefit for the government”.

The government admitted in the Making Tax Digital impact assessment that landlords earning £50,000 could incur an average transitional cost of £285 and an average annual additional cost of £115.

Accountants are concerned about Making Tax Digital

Simon adds under Making Tax Digital, landlords must be organised and can’t leave their tax return until the last minute.

“You’ll have to do your bookkeeping every quarter. You’ll need to set aside time each week or month to prepare your quarterly report”, Simon says.

“There’s a statistic showing that 85% to 87% of people leave their annual self-assessment tax return until the 30th or 31st of January. That’s a lot of people, and many of them could fall under Making Tax Digital. They won’t be able to leave it until the last minute any more.

“Landlords will need to be committed, organised and structured, keeping receipts in a bookkeeping system that then reports directly to HMRC.”

Simon adds it’s not just landlords who need to be organised, noting that accountants are also struggling to keep up with Making Tax Digital.

Simon and Louise, who are members of the Association of Tax Technicians (ATT), say many accountants are concerned about the upcoming changes and he urges landlords to speak to their accountant now.

He said: “I’m alarmed by some of the actions from general accountants. Many are already saying, ‘I’m giving up, I hope it all goes away’. Landlords should reach out to their accountant to understand where they stand, what advice and support they can offer, and how much they actually know about MTD.”

Short term, it’s a whole load of administration pain, frustration and learning

Louise echoes Simon’s thoughts and says many of their clients want to understand the impact of Making Tax Digital.

She tells Property118: “If I were the prime minister, Making Tax Digital would not be on my agenda.

“Short term, it’s a whole load of administration pain, frustration and learning, which understandably some people don’t want to do.

“We’ve experienced this with our clients. We’ve been talking to them about Making Tax Digital for 10 months, and almost all clients understandably want to understand why this is happening and what benefit it gives them and HMRC.

“Other than perhaps giving you an earlier indication of what your tax is currently shaping up to be at the end of a tax year, I really am struggling to see a genuine benefit to individuals experiencing and working through this new pain threshold.”

She adds that the key for landlords is to accept that Making Tax Digital is here to stay and to learn which software works best.

“All of a sudden, the dog is wagging the tail rather than the tail wagging the dog,” she says. “The best way to deal with this is to accept it’s here and get on with it, putting your systems in place as quickly as possible.”

Louise says it’s important for landlords to check whether they will need to comply with Making Tax Digital by reviewing two numbers on their 2024/2025 tax return.

She said: “The two numbers you need to look at are your rental income, that’s your gross rent roll, before deducting any expenses, plus your gross income from any self-employment or trade activity.

“You might have one or both of these, but you need to add them together if both appear on your tax return. If that total is above £50,000, you’ll fall under Making Tax Digital from 6 April 2026.”

What software is best for landlords to use for Making Tax Digital?

Simon explains there’s a big push for people to use spreadsheets with bridging software to import information to HMRC. However, he says spreadsheets are not the answer, and there’s better software designed specifically for landlords.

He said: “The nervousness I have with spreadsheets is that Microsoft reported 85% of spreadsheets contain errors. That’s a large number! For landlords, using tools designed specifically for what you do is often better.”

Simon adds there’s plenty of user-friendly software for landlords, and cost should not be a barrier.

He said: “There are tons of software out there for landlords including Landlord Vision, Hammock and Xero. The one thing I would say to landlords is don’t let the cost put you off investing in one of these platforms, because it can save you time.

“For spreadsheets, you have to manually type things in. At some point, HMRC will ask you to link a receipt to an invoice, which is really tricky even with bridging software. With a system like Hammock or Landlord Vision, they might supply that automatically, allowing HMRC to review your records without contacting you.”

Caught the property bug and started investing

Simon and Louise explain how they both got the ‘property bug’ and started investing and have served more than 1,000 clients each year for Optimise Accountants.

Simon says: “Louise and I are partners in life as well as in business and investing. We’ve been as a business going since 2003.

“We help our clients structure their property business from limited companies to demystifying what they can do with all the tax changes that we’re seeing currently.”

Louise says they started building a property portfolio and soon caught the property bug.

She explains: “Our investment portfolio started as many do, with one to two properties, and then we got hooked and couldn’t stop.

“We just kept growing the portfolio from apartment buildings to family homes. We originally started with an aim of learning about the industry and doing something a bit different to what we did in our day jobs but connected to it, and it became a real passion.”

Make sure that you have mutual respect for each other

Louise admits some people may say they can never work with their partner, but her and Simon have made it work.

She said: “I  don’t think you should discount it until you’ve tried it. We are compatible in lots of different ways and similar in our thinking and values, but also different enough to bring different perspectives through property portfolios and family and business life.

“That really makes a massive difference. Where Simon is the wings sometimes of the business, I’m the lead boots, and vice versa at different times, it really works nicely.”

Simon adds the key to working together is having mutual respect.

He said: “Make sure that you have mutual respect for each other and understand that you can bring different strengths to the business, as most of our accountants do.

“I think sometimes it’s easy, when you’re working on your own, to bring someone else in, a bit like joint venture partners, and when they fail, it can cause problems. When you involve your spouse, if you don’t relinquish some control, that’s often where battles happen. I think having a bit of respect, as much as having a bit of fun with it, really does help.”

Exemptions for Making Tax Digital

As previously reported by Property118, the government’s impact assessment for Making Tax Digital claims that exemptions will be allowed.

One of these includes religion, Simon quips: “If you’re a Jedi knight whose religion is not to use electronic devices, then you are exempt from MTD.”

Louise explains that whilst this is true, there are two ways in which landlords can be exempt, but they need to act sooner rather than later if they want to qualify.

She said: “There are digital and automatic exemptions. A digital exemption means you are exempt from needing to use the new Making Tax Digital for Income Tax system if there is a genuine reason you cannot use digital tools.

“That could be due to age, religion, or limited access to digital services. If you fall into one of those brackets, you may be able to become exempt, but they are very high hurdles to jump.”

Louise recommends anyone who may fall into one of these areas contact HMRC as soon as possible to start the appeal process.

She explains: “You can ask your accountant, tax adviser or agent to help you with that. They will help you build the appeal process letter that you’ll need to send in. I don’t think there is a form currently, whether there will be in the future, we’ll have to see. However, you will then need to submit that, most likely via post, and wait for a reply. There’s no answer on how long that wait will be at the moment.”

Louise explains the automatic exemption will apply in certain cases.

She says: “These types of exemptions do not require you to reach out to HMRC to ask if you fall within them.

“For example, if you are a trustee of a trust, then that trust is unlikely to need to do Making Tax Digital, even if it has property income or a trade activity.

“If you are acting on behalf of a deceased individual as their representative, you will not need to do Making Tax Digital for income tax.”

Simon also points out limited companies are exempt from Making Tax Digital.

Fines for landlords

The government has confirmed penalties for Making Tax Digital will include fines for landlords and Louise says: “Whether or not you are a Jedi Knight, sadly, there are penalties that fall into two categories, penalties for filing late and penalties for paying late.

“The best way to describe the filing-late penalties is to think a little bit like you would if you happen to get points on your driving licence because you go a little too fast. This is exactly the same principle that’s going to apply to MTD.”

Louise explains landlords need to understand the penalty process.

She said: “The moment you sign up, there’s a section you have to tick which says yes, I agree that I am signing up to a new penalty regime.

“Over the next three years, the sign-up process is going to be compulsory for some landlords, and they need to recognise there’s a different kind of penalty process to the one they may be used to for self-assessment tax returns.”

Financial penalties for filing late

For penalties for filing late, Louise explains: “The first thing to understand is if you are currently volunteering, you will not pick up any penalty points if you file the quarterly returns late. The moment you move to it compulsorily, you will pick up penalty points for filing quarterly returns late.

“However, whether you are voluntarily involved or compulsorily involved, you will pick up penalty points when you come to filing the final year tax return late. The deadline for filing that tax return for MTD are exactly the same as the ones you have right now for the classic methodology of filing tax returns.”

Louise adds the penalty points can build up over time.

She said: “Imagine you are in the compulsory stage and you can tot up a maximum of three penalty points and receive no fines. For example, you file late quarter one, two and three, there’s no penalty. If you now file late quarter four and pick up a fourth penalty point, you will now incur a £200 penalty.

“If you continue to grow those penalty points by continuing to be late with further filings, whether that’s the end of the tax year or the next quarter filing, then you get another £200 penalty, and they continue to build in that way while you have four or more penalty points.”

Louise warns: “It takes up to two years to remove penalty points, but you only get them removed if you are well-behaved and file subsequently on time every other quarterly and annual return.”