HMRC has signed you up for Making Tax Digital: what to do before 7 November

HMRC has started writing to landlords who were in scope for the first wave of Making Tax Digital (MTD) but missed the first deadline on 7 August. Up to now people have had to work out if they qualified for MTD and enrol themselves. But in a move to get more people compliant, HMRC is automatically enrolling people who missed the first deadline and telling them to submit an update asap and be ready for the next one due 7th November.

If this is you and you’re not sure where to start, then don’t panic. This blog explains what you need to do to bring things back on track, and also reassure you that “it's not as difficult as you might think,” as one of our customers told us.

We’ll look at eligibility and exemption, how to select software, why it’s important to consider if you need an accountant involved, and how you can catch up on the missed deadline and get ready for the next.

We’ll start with why you’ve been enrolled.

Am I really in scope for MTD?

It’s a fair question and if you think you’ve been enrolled by mistake, then you can ask to be exempt. But chances are you’ve been caught out by the way in which the income thresholds are calculated, as I’ll explain.

MTD is a major initiative by HMRC to transform the tax system and change how frequently taxpayers submit an update. Under MTD, taxpayers will make a submission every quarter and complete a final declaration at the end of the year.

Millions of taxpayers will have to complete MTD, but to help manage the load, MTD is being rolled out in phases according to qualifying income value. The first wave of taxpayers includes those with an income of £50,000 or more. By April 2027, it will include those with a total income of £30,000, and by April 2028 those with an income of £20,000. (What happens after 2028 is to be confirmed).

It’s important you understand what’s meant by income. MTD eligibility is calculated according to total gross income before expenses, so if you have revenue from property investment, and a self-employed income then you need to combine them to calculate when you qualify. If it totals £50,000 or more then you are in scope this tax year and need to start quarterly updates ASAP.

What do landlords need to do to catch up and meet the November 7th deadline?

The first step is to start using HMRC-recognised software, like Provestor

Instead of using paper and spreadsheets, you now need to keep digital records of your rental income and expenses in HMRC-recognised software, and use it to submit an online update directly to HMRC each quarter.

Nothing else changes, you’ll still do your self-assessment at the end of the year, making any adjustments for tax reliefs and allowances, and you’ll pay your tax annually.

The quarterly updates are cumulative, so the next update covers the year to date. That means there’s time to catch up and get your digital records up to date and back on track.

What kind of software should landlords look for?

You’ll need property specific software if you want MTD to be a breeze.

The good news is HMRC publishes a list of recognised software. This means the software is compliant and compatible with the MTD process. The bad news is there are around 90 choices.

However, landlords can quickly narrow it down. You’ll have some very specific tax considerations to account for, ones that generic accounting software isn't designed to handle, so make your shortlist according to specific property tax features.

For example, take a scenario where you have a property that's jointly owned, there’s mortgage interest to calculate for different properties, capital and revenue expenses that need to be correctly categorised, and Section 24 compliance to manage.

A standard accounting package like Sage or Xero won’t be able to handle that easily, especially if you’re not an accounting expert. You could find yourself breaching compliance despite your best efforts and intention.

This is where Provestor’s property-specific software can make a difference. It’s been designed by property investors for investors, so it will easily and simply manage all aspects of property tax, expenses, including ownership structures, mortgage expenses and Section 24 rules. It will even give you hints as you complete the submission process so you have a high chance of accuracy.

How quickly can I catch up and submit my quarterly update?

You do need to get on to it ASAP but don’t get the software choice wrong. It will set you off on the wrong foot.

If you’re considering Provestor, then our demo will help you weigh up the options, but whatever is on the shortlist, think about how confident you are to do accurate bookkeeping.

We’ve developed our software so it’s intuitive and does lots of the heavy lifting for you, so if you have a straightforward set up, and you are confident you can get the bookkeeping done yourself then our DIY service sounds right for you.

However, if to begin with, you’d like to do most of the work yourself and have the safety net of a final check by a Provestor accountant before you submit the quarterly update then our Assisted service is the right choice.

In fact, it’s well worth it, as in 80% of Q1 our accountants caught, corrected or cleared up something a landlord missed, not because the software was at fault, but because of small but significant errors in the submission - a bank statement wasn’t uploaded, or an expense was mis-categorised or duplicated. One of our Assisted customers sums it up: “[it’s] very helpful as a checklist before submitting the first quarter.”

Another explains how they benefited from a final check "I preferred an accountant to check the figures to spot errors I couldn't see. The review found missed rental income in May because a bank statement hadn’t been uploaded.”

If time isn’t on your side or you’d like someone to do the whole thing for you so you can be absolutely sure your submission is on time and accurate then our Done For You service will get it done.

Paying for peace of mind can be reassuring, as this Done for You customer said: “It’s more likely to be done correctly and the charges are manageable.”

Remember, whichever option you use, you’ll need to be organised and have your mortgage, bank and letting statements to hand.

Are there any benefits to doing Making Tax Digital?

Yes, choose the right software and you’ll definitely find you’re in more control of the HMRC administration, tax position and in a position to plan your future.

One of the big fears around MTD is that it's going to create a huge amount of extra admin. But that’s not been the case, for most of our customers they said it took about as long as they expected, or less time.

“After doing it for the first time it should be straightforward for the next one.”

• Do It Yourself customer

That’s a good indication that once you've got your software set up, your properties added and your records flowing through, you’ll find doing MTD becomes part of your normal financial admin rather than a once-a-year self-assessment scramble, and gives you more control over your finances and decision-making.