Major Changes in the UK Tax System: Landlords Required to Report Income Quarterly
Starting from April 6, 2025, the UK’s HM Revenue and Customs (HMRC) will implement significant changes to the income reporting system for landlords. This change will shift the frequency of income reporting from once a year to every three months.
This reform is part of HMRC's "Making Tax Digital for Income Tax" (MTD) initiative, aimed at digitizing the tax reporting process. According to the new regulations, individuals with rental or self-employment income exceeding £50,000 (approximately HKD 515,000) will be affected, with about 780,000 people expected to comply with the new system.
By April 2027, the plan will expand to include individuals with annual incomes between £30,000 and £50,000 (approximately HKD 309,000 to HKD 515,000), potentially impacting around 970,000 people. After a two-year trial period, the implementation will further extend in 2028.
Under the new regulations, anyone with a total annual income exceeding £50,000 will be required to electronically record their income and expenses and use compliant software to report their income to HMRC quarterly. It is important to note that the income threshold is based on gross income rather than net income after expenses. Therefore, even if net income is low, individuals will still fall under the new requirements.
HMRC states that the primary goal of this reform is to enhance the accuracy of tax reporting, reduce errors, and save time. In the long run, this will help taxpayers better understand their tax situation throughout the year. The authorities also encourage taxpayers to participate in MTD testing programs early to familiarize themselves with the new system and receive additional support.
However, international tax expert Andy Wood points out that many believe the income threshold refers to net income after taxes, when in fact it is based on total income. As a result, the number of individuals affected is much greater than many realize. This reform is seen as the largest change since the introduction of the self-assessment system. While MTD aims to simplify tax reporting, it may increase administrative burdens for small landlords and self-employed individuals who are accustomed to using paper-based reporting or simpler methods.
Therefore, experts recommend that capable taxpayers adapt to the new reporting platform as early as possible. Preparing in advance will allow them to respond more confidently when the new system is officially implemented, avoiding last-minute confusion.