6th May 2016
The government has recently announced big plans to transform the tax system for landlords and self-employed individuals. The changes will introduce “digital tax accounts,” with the aim of making it easier and quicker for landlords to keep on top of their tax affairs.
The digital tax accounts will effectively mean the end of the annual tax return, being replaced with a requirement to report quarterly updates to HMRC. Landlords will have to provide a summary of their rental income and expenditure digitally and send it to HMRC “at least” every three months.
Landlords will have to use approved software or apps to keep a record of their income and expenditure. This software will need to be compatible with HMRC’s systems. It is envisaged that free software and advice will be available when the changes come in from April 2018. Indeed, free software is available now but it often has limitations for landlords with more complex affairs.
It is not clear at this stage whether the introduction of providing quarterly information to HMRC will mean that landlords will have to make tax payments quarterly as well. It could be argued that accelerating tax payments is the whole objective of this policy (albeit the government have not announced it!)
There will undoubtedly be more administration for landlords, and potentially cost implications too. Landlords will still be able to use agents to manage their affairs digitally on their behalf, but many will be concerned that one tax return per year is going to turn into four quarterly updates to HMRC and therefore four times the accountant’s costs.
The timetable set out by the government is quite ambitious – are they really going to have the systems and software in place to cope with this level of reporting? It may well be that some of the changes are delayed or withdrawn altogether. Many will ask why these wholesale changes are needed – taxpayers have got used to doing one tax return a year and feel that it is a reasonably straightforward process, which does not need to be made so much more onerous.
Ward Williams accountants have a team that specialises in the needs of landlords. We will be keeping a close eye on these plans as they develop, so that we can assist our landlord clients.
Find out more about Ward Williams at http://www.wardwilliams.co.uk/