HM Revenue and Customs (HMRC) have been writing to landlords with furnished holiday lets recently, inviting them to take part in the next stage of trials for Making Tax Digital (MTD).

Some commentators have suggested that this means that the next group of businesses to be mandated into MTD, from 2021, will be landlords with furnished holiday let properties.

Landlords selected for the trial will need to find and sign up for MTD-compatible software to keep a digital record of their income and expenses for the 2019/20 financial year.  During the trial, landlords will need to submit digital records to HMRC every quarter, along with a final annual summary by 31 January 2021.  That is FIVE separate returns to HMRC for a single tax year!

Landlords are not the only ones being encouraged to trial the MTD system for income tax.  Sole traders are also being asked to test the software too.  VAT registered businesses with turnover in excess of £85,000 are already using the MTD system to file their quarterly VAT returns with HMRC, but MTD for income tax is still in the trial stages.

The Government confirmed earlier this year that it would not mandate MTD for any new taxes or businesses in 2020.  The delay was prompted after concerns were raised that the pace of the roll out to small businesses was too fast.

HMRC’s letter to landlords points out that HMRC consider that the improved accuracy and support that digital software provides, and the fact that information is sent directly to HMRC from the software, will reduce the amount of tax lost due to avoidable errors.

Some commentators believe that there are a lot more advantages to landlords in moving to a digital system.  Many landlords lose claimable receipts and can struggle to keep their records in good order.  By using software to record income and expenses in real-time it will be easier for landlords to monitor the profitability of their rental portfolios and to plan well in advance for the year end tax payments.