From 2027, nearly one million landlords and sole traders with property income over £30,000 are estimated to fork out hundreds of pounds to follow requirements under the Making Tax Digital programme.
Originally introduced in the 2015 Budget, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) aims to make managing tax affairs simpler while reducing errors.
The first phase, launched in 2019, targeted VAT-registered businesses.
Through MTD, landlords will be required by law to keep digital records and submit quarterly updates to HMRC using compatible software.
For those not already doing this, they will need to purchase or acquire a free version of the software.
Starting from April 2026, individual landlords with qualifying income over £50,000 will be brought under the scope of MTD for ITSA.
From April 2027, landlords with qualifying income exceeding £30,000 will also be required to comply.
It is expected that around 780,000 people with business or property income over £50,000 will join the MTD for ITSA service from April 2026, with a further 970,000 joining from April 2027.
Yesterday (22nd February), HMRC revealed that landlords with property income over £30,000 could face an estimated average transitional cost of £350 and an average annual additional cost of £110.
For landlords with income over £50,000, projected figures indicate an average transitional cost of £285 and an average annual charge of £115.
“Costs invariably will differ from business to business and are influenced by factors including size and complexity of the business, degree of digital capability, and cost and functionality of the software solution employed,” the paper stated.
Transitional costs could include time spent getting to grips with the MTD obligations, in-house training, purchasing or upgrading hardware, and additional accountancy or agents’ costs.
Annual expenditure could comprise software subscriptions, extra time to make quarterly updates, and bridging software to provide MTD compatibility for those who prefer to use spreadsheets.
“Although the idea of digitalisation is a good one in theory, the reality is that many landlords will have to absorb additional costs, while being wrapped up in yet more red tape by HMRC,” commented Sam Reynolds, CEO at Zero Deposit.
He branded the additional costs for landlords in the £30,000 threshold as “a bridge too far”, especially while the sector is still coming to terms with the financial challenges posed by high interest rates and increased BTL running costs driven by inflation.
“It’s also fair to say that the additional cost, red tape, and time drain of the new initiative will be seen by many as a bitter pill to swallow given the string of legislative changes they’ve already had to stomach in recent years and will only serve in making the sector even less attractive to current and prospective landlords,” Sam added.
“What we're keen to hear more of is incentives for landlords to invest in the sector and increase the volume of available rental properties; both antidotes to the current low levels of stock and unsustainably high rental values.
According to the authority’s policy paper, those already operating MTD for VAT or using digital tools for business administration may incur relatively little cost.
HMRC has also been working with the software industry to improve access to affordable products.
The government said it was committed to there being free software products for the smallest businesses with straightforward affairs.
Although the powers that be have confirmed it will keep the decision on whether to mandate businesses and landlords with income below £30,000 to use MTD for ITSA under review, this group can still sign up voluntarily.
