For many landlords and sole traders, this summer marks the start of a new way of managing tax. Making Tax Digital for Income Tax (MTD for IT) is now underway, with those earning more than £50,000 in qualifying income beginning to submit quarterly updates to HMRC using digital software.
The first filing deadline on 7 August marks an important milestone, but it's only the beginning. Making Tax Digital is designed to become part of the routine of managing finances, so establishing good habits early can make each quarterly update easier than the last.
The good news is that preparing for MTD doesn't require a complete overhaul. A few small changes can make a real difference, saving time, reducing stress and giving landlords and sole traders a clearer picture of their finances throughout the year.
Get the digital setup right
MTD requires digital records to be kept and quarterly updates to be submitted using HMRC-recognised software, so having the right setup in place is an important first step. This has been a significant change for many people. Earlier this year, Xero research found that two in five small businesses, sole traders and landlords affected by the first phase of MTD for Income Tax didn't feel ready for the new requirements. Many will now have completed their first quarterly update, but the findings are a reminder that adapting to a new way of managing tax takes time.
Landlords and sole traders who are still finding their feet should start by making sure they've signed up for MTD for Income Tax with HMRC and connected their accounting software to their HMRC account. Once everything is linked, quarterly updates can be submitted directly through the software without needing to switch between different systems.
It's also worth spending a little time getting familiar with how everything works. The more familiar people become with their software day to day, the more straightforward each quarterly update becomes.
Keep records up to date
One of the biggest adjustments under MTD is moving away from catching up on paperwork every few months.
Building record keeping into a regular routine is far more manageable than trying to reconstruct months of transactions just before a deadline. Setting aside a little time each week to keep digital records up to date makes the process much less daunting.
There are wider benefits too. Having accurate financial information throughout the year makes it easier for landlords and sole traders to understand their financial position, plan for upcoming tax bills and spot potential issues before they become bigger problems.
Keep finances separate
One of the simplest ways to make record keeping easier is to separate personal finances from rental or business income.
Whether that's through a dedicated business bank account or a separate account for rental income, keeping transactions organised from the outset makes bookkeeping much simpler. Connecting those accounts to accounting software can streamline the process further by automatically importing transactions, reducing manual data entry and making records easier to maintain.
It's a relatively small step that can save a surprising amount of time over the course of a year.
Let technology take care of the admin
Most landlords and sole traders would rather spend their time running their business or managing their properties than entering receipts.
Modern accounting software can automate many of the repetitive jobs that used to take hours. Features such as Smart Document Capture can scan receipts, invoices and rental statements, extract the key information automatically and pre-fill digital records, helping reduce manual work and the risk of errors.
Those time savings might seem small on a day-to-day basis, but they soon add up. More importantly, they make it easier to keep records accurate and up to date throughout the year.
Make sure everyone knows their role
Many landlords and sole traders rely on an accountant or bookkeeper for support. Under MTD, it's worth agreeing who's responsible for what.
For example, digital records might be kept up to date throughout the quarter while an accountant reviews everything before submission. Alternatively, the accountant may take responsibility for filing the quarterly update, leaving more time to focus on the day-to-day running of the business or managing rental properties.
Having those responsibilities agreed in advance helps avoid confusion and means everyone knows what's expected when the next quarterly update is due.
Think beyond the deadline
Once the first quarterly update is complete, it can be tempting to put MTD to the back of the mind until the next deadline. In reality, keeping digital records up to date throughout the quarter makes every submission much easier.
Landlords and sole traders who keep accurate digital records often have a much clearer view of their finances. That can make it easier to manage cash flow, prepare for tax bills and make informed decisions throughout the year. Quarterly reporting then becomes part of the normal routine instead of a task that only gets attention when a deadline is approaching.
For many, completing that first quarterly update is simply the beginning of a new way of working. Once the right processes are in place, each submission should become more straightforward than the last.
Making Tax Digital represents a significant change, but it also offers an opportunity to simplify financial administration and gain better visibility over income and expenses. By keeping records up to date, making the most of digital tools and working closely with an accountant or bookkeeper where needed, landlords and sole traders can spend less time on administration and more time focusing on running their business or managing their properties.
