“Making Tax Digital” will affect landlords the most
- Published: Tuesday 21 July, 2020
- By: Nicola Eaton
A leading tax specialist has warned landlords that they will be the most affected by Making Tax Digital (MTD), as the government announces its next phase of roll-out.
Currently, MTD applies to companies with a VAT threshold of over £85,000; it requires firms to submit VAT returns quarterly, via MTD software.
However, in the next phase of rollout, all businesses and subsequently, individuals, will be included.
Launch date for all businesses
From 1st April 2022, all VAT-registered businesses are required to switch to MTD.
Launch date for all individuals
From April 2023, individuals will be included within MTD. This will apply to taxpayers who file income tax self-assessment tax returns for business, or those who receive income from property, which exceeds £10,000 per year (and therefore not, for those that do not).
What is the objective for MTD?
The government has said that the objectives are:
- Help businesses keep on top of their tax obligations
- Improve the productivity of the economy
- Minimise avoidable mistakes (this cost the exchequer £8.5 billion in tax year 2018-2019)
The government made clear in their statement that the programme will not affect the amount of tax paid; it will instead affect how it is reported.
Why is this being highlighted so far in advance?
The move to MTD is a significant one, so the government are hoping that by giving everyone plenty of notice, there will be plenty of time to prepare.
Is MTD software free?
It is hoped that software companies will have plenty of time to produce free MTD platforms, so that where tax matters are straightforward (e.g. for small businesses or individuals), they can make use of such resources.
At the time of writing, there are 539 platforms registered to provide MTD solutions, 17 are free.
Jesse Norman, financial secretary to the Treasury, appeared to reference Covid-19, when speaking about MTD:
“We are setting out our next steps on Making Tax Digital today, as we bring the UK’s tax system into the 21st century.
“Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.”
Partner and head of private clients at accountancy firm Haysmacintyre, Katharine Arthur, has highlighted that landlords are likely to be most affected:
“The announcement is particularly significant, proposing a huge administrative challenge once Making Tax Digital becomes mandatory for Income Tax.
“With reporting required quarterly as opposed to annually, it is likely that buy-to-let landlords, small business owners and the self-employed, who already have limited resources, will be most affected by this change.”
However, there are indications that the switch is a welcome one, for some. Over 30% of companies who are not obligated to adhere to MTD have started using it voluntarily.
This is thought to be because the tools available are helping to reduce errors and increase productivity.
Time will tell whether this is something landlords will also find to be the case.
Wales implements 6-month notice
The Welsh government has temporarily introduced a six-month notice period on repossessions, in reaction to Covid-19.
The news was issued via a cabinet statement from Julie James, Minister for Housing and Local Government, on 23rd July:
“I can now confirm that, as Minister for Housing and Local Government, I have made Regulations under paragraph 13(1) of Schedule 29 to the 2020 Act. The Regulations temporarily increase from three months to six months the notice to end a tenancy that landlords must give assured tenants under section 8 of the Housing Act 1988 (but excluding notices specifying Grounds 7A and 14) and to assured shorthold tenants under section 21 of that same Act. “
This has come as a bitter blow to affected landlords in Wales who will be forced to carry the cost of unpaid rent.
The intention of the Welsh government is to “further delay evictions during the ongoing public health emergency”.
In the statement, Mrs James described the desire of the government to reduce homelessness “at a time when local authorities are less able to respond to these situations”.
However, many landlords are reliant on rent for their own living costs, or to cover mortgages on rental properties, so the news has been met with strong feeling.
Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), responded to the announcement:
“The news that the notice period will be increased from three to six months will come as a real hammer blow to landlords in Wales.
“Some may already have tenants who were building up arrears prior to Covid, now not only have they been hit by the five-month moratorium on repossessions but they will have to give a further six-months’ notice.
“Even after this, it is unlikely the courts will be able to hear these cases straight away, so landlords could quite easily be looking at 18 months with no income.
“Effectively depriving a landlord of their right to evict as we come out of lockdown is unacceptable. The Welsh Government must act swiftly to address this, by offering interest free loans to tenants to cover unpaid rent and remove any risk of eviction. Where tenants refuse to apply for loans but continue to build arrears, landlords will need greater assistance.”
Are any cases excluded from the 6-month notice period?
- If the reason for a possession is anti-social behaviour, the changes will not apply.
- Where notice has already been served, the three-month notice period still stands.
NRLA is calling on the Welsh government to help landlords with the financial loss of earnings by providing loans to landlords where rent is paid directly to them.
West Lothian Council seeks landlords help
West Lothian Council has renewed their call to private landlords to come to their aid, in order to house people on the council housing waiting list.
The council’s “Private Sector Landlord Service” offers guaranteed rent for a minimum of 12-months, which can be renewed for a further 12-month’s, if the council and the landlord or agent are happy to do so.
The scheme also offers a deposit guarantee of two-month’s rent, to settle any discrepancies at the end of a tenancy that fall outside wear and tear.
The rental income applicable will be in line with the local housing allowance rate.
This is not the first time the council has reached out to the private sector for support; a similar call was issued in November 2019.
However, in a statement made by George Paul, executive councillor for services in the community, the pandemic has had an impact:
"I would encourage all landlords who have properties available and who may be interested in the scheme to contact the council today.
"As lockdown restrictions are gradually lifted this is an opportunity for a landlord to work with the local authority and help provide a home for people during this uncertain period all while ensuring they receive rent on their property for a minimum of 12 months."
Where repairs are required at a property used with in the scheme, the tenant will report this to one of the councils housing officers, who will then inform the landlord or letting agent.
It will then be their responsibility to attend to the issue.
Landlord feedback on the scheme
In November, a local couple who rent out a property through the scheme were asked to share their experiences:
"We have been renting our property out to yourselves for just over 1 year. Any issues regarding repairs that you pass on to us are dealt with efficiently by ourselves, by dealing directly with the client renting the property. To date we have no problems at all and are therefore happy with the arrangements."
If landlords within the region are interested in joining the scheme, they can contact the council by emailing Private.LettingServices@westlothian.gov.uk.
Whilst the council does also have a telephone-based customer service centre, only emergency enquiries are being handled by the team at the present time.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.