Digitising tax for landlords has been long anticipated, and with April 6th 2023, less than two years away, it is important to ensure that everyone is ready and understands what needs to be done.
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The 2023 date is the starting point from which anyone who makes more than £10,000 per annum in rental income from their property needs to be ready to record and file their tax online. If you need help understanding what this means for you, then this guide will help you prepare, but if you have any questions we are experienced landlord accountants so do please contact us!
How to Get Ready for April 2023
You may think that April 2023 is so far away that you do not need to worry about getting ready yet, but you would be wrong. One of the key parts of your preparation is finding financial software that will help you report your tax to the new system. The software that you choose should align with HMRC’s online system. While you can choose to continue keeping paper records if you like, there will be a legal obligation to keep digital records to reduce the number of mistakes made each year currently.
Why Digital Record-Keeping is Revolutionary
Currently, many landlords have to dedicate a portion of their week to update their records. This means that mistakes are more easily rather than dealing with things as they come in.
Many software options offer a mobile app so that you can update everything immediately and on the go, as well as allowing you to upload receipts so that you don’t have to miss out on claiming expenses anymore. The other great thing about this type of system is that you can add trusted users to your software account if they help you with your finances or if you have an accountant that prepares your accounts for submission.
How the New System Will Work
Rather than submitting your self-assessment each year, the new system requires you to submit quarterly income and expenses updates so that your tax can be calculated as you go. This means that you will pay your tax by the 31st January deadline as normal but won’t need to send a self-assessment, reducing the paperwork rush at the end of each tax year.
All the information sent goes via a secure portal on the UK Gov website, and you will need to retain copies of everything for six years as per tax guidelines. Failure to submit your quarterly report more than a month after the submission deadline will result in penalty points being added to your account, which will result in a financial penalty. Plus, failure to pay penalties on time will incur charges and interest.
Signing Up for the New System
You don’t need to wait until April 2023 to start using the new system – you can sign up now! All you will need is your NI number, Unique Tax Reference Number and a Government Gateway ID account (you can sign up for this on the UK Gov website).
You will also need to be using compatible software to submit your accounts. If you are not sure which software to use, you can find a list on the Gov UK website and even access a free trial to give you a chance to discover which one you like the best, or we can help assist as we are recommended partners for both Quickbooks and Xero.
A Simplified System for Landlords
Whether you work with a partner or have multiple properties, the new digitised system offers a streamlined service so that you can upload your information quickly and get a clear idea of the tax you will need to pay. In addition, you will not need a separate account for each property you own, and you will only need one account even if you are in business with a partner.
The new system may shift in the way things have been done, but the ability to file online will help you avoid missing out on money that is lost from errors and inaccuracies. It will also give you a better way to monitor how well each property is working for you and the income you are generating so that you can make the right changes to the right places!
Check You Are Not Exempt
Finally, before you sign up to use the new system, it is wise to check that you are not exempt, especially if you are happy with the way you currently complete your accounts. Landlords who earn less than £10,000 per annum and landlords who use the Rent A Room scheme are exempt from signing up. Plus, you may be able to avoid the new system based on location or even religious beliefs – take the time to check this out if you do not want to transfer to the new system by April 2023.