Making Tax Digital (MTD) for Income Tax Self‑Assessment (ITSA) is transforming how landlords manage rental income. Starting 6 April 2026, landlords with combined property and self‑employment income over £50,000 must keep digital records and send quarterly updates using HMRC‑compatible software. The thresholds drop to £30,000 in April 2027 and £20,000 in April 2028. While the initiative aims to reduce errors and modernise tax administration, it presents several challenges for landlords.
1. Confusion and Anxiety About Rules
Surveys show that 87.5% of landlords feel worried or unclear about MTD requirements. Common misconceptions include believing that profits, use of an accountant, or leaving accounting to the last minute exempt them from MTD. However, the gross income threshold (not profit) determines whether you must comply. This uncertainty creates stress and delays in preparation, highlighting the importance of using Making Tax Digital Software for Landlords to streamline the compliance process.
What landlords should know
- Mandatory registration: MTD applies based on gross income thresholds; check if your combined property and self‑employment income exceeds £50,000 in the 2024‑25 tax year.
- Time frame: After informing HMRC, you have 90 days to calculate and pay any outstanding tax【827492037205890†L620-L633】.
- Penalties: HMRC has promised a 12‑month grace period for late quarterly submissions provided landlords make a reasonable effort to comply.
2. Digital Software and Record‑Keeping Challenges
Landlords must use HMRC‑approved software to record income and expenses and submit quarterly updates. For many, this means learning unfamiliar systems or paying for cloud‑based accounting platforms. LandlordZone notes that a major concern is the cost and complexity of software, especially for those with limited digital skills.
Common issues
- Multiple properties or joint ownership: Each landlord must keep separate digital records. Joint owners may need individual software licences, and although HMRC allows some easements, details remain unclear.
- Digital record‑keeping: Even though MTD allows simplified three‑line accounts, you must still maintain detailed digital records of all income and expenses.
- Quarterly submissions: Instead of an annual return, landlords must submit updates in August, November, February and May, plus a final declaration by 31 January. This creates a continuous administrative burden.
3. Complexity for Joint Owners and Multiple Income Streams
Many rental properties are owned jointly by spouses or business partners. MTD rules require each owner to file their own quarterly updates, even if they share a property. Joint owners currently cannot share the same digital records because HMRC’s Agent Services account restricts multiple agents from accessing the same data. Additionally:
- Landlords who also operate sole‑trader businesses must combine both income streams to determine if they cross the MTD threshold.
- New landlords cannot join MTD immediately; they must file at least one self‑assessment return before enrolling, leading to parallel systems during the transition.
4. Digital Exclusion and Exemptions
Not everyone can adopt digital tools. HMRC allows exemptions where it is not reasonably practicable to use digital records due to age, disability or location. Religious objections also qualify. However, HMRC does not accept exemptions based solely on unfamiliarity with software, the small number of transactions, or concerns about cost.
How to apply for an exemption
- If you believe you’re digitally excluded, you must apply to HMRC before your start date. An agent can apply on your behalf.
- People previously exempt from MTD for VAT should contact HMRC to confirm if the exemption extends to MTD for ITSA.
5. Solutions and Next Steps
To navigate these challenges, landlords should:
- Assess your income: Determine whether your total property and business income crosses £50,000 (and future thresholds). If you’re below, you may voluntarily join or wait until mandated.
- Select software early: Research HMRC‑compatible software and start using it before April 2026. This allows time to learn digital record‑keeping.
- Maintain digital records now: Even if not yet mandated, keeping up‑to‑date digital records makes transition smoother and ensures accuracy.
- Consider professional support: Engage an accountant or tax adviser familiar with MTD. They can handle digital record‑keeping and submissions on your behalf.
- Check for exemptions: If age, disability, religious belief or location make digital compliance impractical, apply for an exemption promptly.
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Conclusion
The Making Tax Digital regime promises efficiencies and fewer errors, but it poses real challenges for landlords: confusion over rules, costs of software, complex reporting for joint owners and multiple income streams, and concerns about digital accessibility. By understanding the thresholds, preparing early, and seeking professional help or exemptions where appropriate, landlords can navigate these challenges and avoid penalties as MTD rolls out between 2026 and 2028.
