Under the extension of Making Tax Digital (MTD) for Income Tax, quarterly reporting will become mandatory for many and the cost of getting it wrong could escalate quickly.

Heather Powell, Partner, said:

Landlords need to be ready to comply with HMRC’s Making Tax Digital (MTD) for Income Tax which comes into force from April 6th or face costly penalties.

The New Penalty Landscape

Penalty points will be awarded if filings are late, at two points (i.e. two late filings) landlords will face a £200 fine. This is on top of another two penalties if the tax due is paid late. For 2026 the first starts 30 days after payment was due based on a set percentage (3%) of the balance outstanding, and a second (10% per annum) starting after 45 days which accrues daily, based on the sum outstanding. Interest will also be charged on late payments by HMRC. Late filing can quickly become extremely costly.

For landlords accustomed to a single annual Self-Assessment return, this represents a fundamental change. The risk profile shifts from one compliance deadline per year to at least four, significantly increasing the chance of error or delay.

Who Is Affected and When?

Landlords who have a gross rental income greater than £50,000 will be required to make quarterly reports to HMRC of their rental income and expenses from 6 April 2026, followed by a final return pulling all of the information together. The first return, reporting rental income and expenses for the three months 6 April 2026 to 5 July 2026 has to be filed by 7 August 2026, with filing from ‘compliant software’ or bridging software that picks up the financial information from an excel spreadsheet.

If they have rental income greater than £50,000 landlords need to start writing up their accounting records from 5 April 2026 and make the first filing by 7 August 2026. If a landlord’s rental income is over £30,000 per year their filings do not need to start until 5 April 2027. Landlords with rental income over £20,000 – which equates to rent £1,666.66 per month – need to start filing from 5 April 2028.

This staged approach may create a false sense of security for smaller landlords. While some have until 2027 or 2028, preparation – systems, software and processes – cannot be implemented overnight.

Operational Reality: Systems Matter

The reform is not just about more frequent reporting; it is about digital record-keeping. MTD requires submissions through approved software, eliminating manual or paper-based processes.

Landlords who run their buy to let portfolios through a separate bank account, and write up the records in accounting software which allows the user to upload copies of the rent demands and purchase invoices are in a good position to comply with these new rules, but need to factor in the administration and deadlines for making their filings into their diaries.

If a landlord collects rent into their personal bank accounts and collates various reports and invoices for analysis at the end of each financial year, they now only have a couple of months to get their accounting records in order. The key tasks are opening a bank account and appointing an accountant to write up their accounting records or purchasing accounting software that HMRC has designated as “compliant” for filing the quarterly returns.

In practice, this means landlords must move towards real-time or near real-time bookkeeping. For portfolio landlords in particular, this could represent a notable increase in overhead costs.

Policy Context: Accuracy Today, Payment Timing Tomorrow?

There has been a lot of discussion on why HMRC are introducing this new filing regime, as tax payment dates will not change. MTD will increase the overheads of landlords significantly. To date the only reply from HMRC has been that this will increase the accuracy of filings.

However, accountants and tax advisors are already speculating that this filing regime will be followed by a quarterly tax payment regime, mirroring the VAT regime. It is easy to see why The Treasury would be happy to see income tax payable by landlords paid at an earlier date than current legislation requires.

If quarterly payments were introduced in future, the cash flow impact could be material. For leveraged landlords, earlier tax outflows may place additional strain on already tightening margins.

Wider Market Implications

MTD does not exist in isolation. It follows several years of tax and regulatory tightening in the buy-to-let sector.

Heather concludes:

The returns earned by landlords have been reduced by changes in the tax regime, and the significant increase in legislation they are required to comply with. Making tax digital is being imposed on all but the smallest landlords. Agents have been reporting over the last year a significant increase in landlords selling their properties, and this tax change is not going to encourage any to stay in the market – further reducing the properties available for people to rent.

For businesses operating in the property ecosystem – lenders, letting agents, developers and investors this matters. A continued exit of smaller landlords could further constrain rental supply, with knock-on effects for pricing, housing availability and investment strategy.

What You Should Consider Next

Whether you are a landlord or an adviser, early preparation is essential:

• Assess your income threshold
• Review your record-keeping processes
• Separate personal and rental finances
• Evaluate compliant accounting software
• Plan for increased administrative costs
• Model potential cash flow scenarios

Would you like to know more?

If you’d like to discuss the above, please speak to your usual Blick Rothenberg contact or Heather Powell using the form below.