Making Tax Digital for Commercial Landlords: Key Rules & Exemptions
Making Tax Digital (MTD) for Income Tax marks one of the most significant changes to UK tax compliance in decades. For commercial landlords, those who rent shops, retail units, warehouses, and industrial premises, this change is especially relevant. MTD does not distinguish between types of property; instead, it applies based on total qualifying income across all trading and property sources. This means landlords of commercial properties are subject to the same digital reporting obligations as any other business.
From April 2026, landlords whose total qualifying income exceeds £50,000 will need to comply with MTD. This involves keeping records digitally, reporting income and expenses on a quarterly basis, and finalizing the year’s tax position through a final declaration. For commercial landlords, this transition carries particular importance, as the volume and value of transactions are higher, leaving little room for error. Additional factors such as service charges, turnover rents, lease premiums, and VAT elections further complicate compliance.
For accountants and tax advisers, these changes create a pressing need to provide sophisticated support, placing them at the heart of their clients’ digital transformation. This guide is designed to walk commercial landlords and their financial advisors through the MTD landscape, explaining who falls within scope, what income counts, how to manage commercial property complexities, and what exemptions might apply.
Who Must Comply with MTD from April 2026?
HMRC is rolling out MTD in phases, applying thresholds based on qualifying income from the relevant tax year. From 6 April 2026, individuals whose total annual turnover from self-employment and/or gross rental income from property exceeds £50,000 must comply. The threshold will drop to £30,000 in April 2027 and £20,000 in April 2028. The government has indicated its intention to continue extending MTD benefits to additional landlords and sole traders with lower incomes in future years.
HMRC uses a “current year minus two” rule to determine who must comply. This means qualifying income is assessed from the Self-Assessment return filed two years prior to the start of the compliance year. For example, for the 2026/27 tax year, HMRC will review the 2024/25 return. If income exceeds the £50,000 threshold, MTD obligations apply from April 2026. Even if income drops in subsequent years, the mandate remains in place unless exemptions apply.
Take Marcus, for instance. He owns three office buildings generating £35,000 in base rent and £18,000 in service charges and parking fees. Additionally, he runs a small property management consultancy earning £15,000. His total qualifying income of £68,000 on his 2024/25 return triggers MTD obligations from April 2026, even if his actual income in 2025/26 or 2026/27 falls below the threshold.
Understanding Aggregation & Portfolio Rules
Commercial landlords often manage multiple properties, sometimes spanning both residential and commercial markets, and may run other trading activities. HMRC requires aggregation of all trading income, UK property income, and overseas property income to assess the MTD threshold. This ensures that all income sources are considered, regardless of the property type or location. The threshold is based on gross income, not net profit.
For jointly owned properties, each owner’s share is counted individually toward their threshold. If a property generating £50,000 is co-owned equally, each owner counts £25,000 toward their MTD calculation. This arrangement requires careful coordination between co-owners to maintain accurate digital records and prevent omissions or duplication, especially if ownership shares are unequal or shared service charges are involved.
Landlords with mixed portfolios, including overseas property, face additional complexities. For example, a landlord earning £30,000 from UK offices, £15,000 from Spanish apartments, and £10,000 from a consulting side business exceeds the £50,000 threshold and must comply. Foreign property income counts toward UK thresholds at a gross level, so landlords with modest UK operations may still be included. Exchange rate fluctuations require a consistent translation methodology, whether based on invoice dates, payment dates, or period-average rates, to ensure compliance and create an auditable record.
While partnerships themselves are not directly in MTD scope, individual partners with additional qualifying income may still fall under MTD requirements. For example, a partner receiving £20,000 from partnership property and £35,000 from private rental property would exceed the threshold individually, creating reporting obligations even if the partnership itself is not yet required to report digitally.
What Counts Toward Qualifying Income?
Understanding which sources of income count toward MTD is essential. HMRC tests qualifying income using specific Self-Assessment boxes. For commercial landlords, this includes income from self-employment, UK and foreign property, lease premiums, and reverse premiums. Typical qualifying income encompasses base rent from commercial units, service charges recovered from tenants, turnover rent from retail units, license fees for car parks or signage, and income from property management or maintenance operations. Recharged costs, such as utilities or insurance, are also included.
Accurately categorizing this income ensures proper reporting. Misclassifying income or omitting transactions can lead to errors in quarterly updates and the year-end final declaration.
Reporting Requirements Under MTD
MTD introduces a two-stage reporting system: quarterly updates and a year-end final declaration. Unlike the traditional single annual Self-Assessment return, landlords must provide earlier and more frequent submissions.
Quarterly updates summarize the main income and expense flows for each property business, providing HMRC with in-year visibility. They do not include complex adjustments, reliefs, or allowances, which are reported in the final declaration. The year-end declaration consolidates all income streams, including property, trading, employment, and investment income, and applies allowances, reliefs, and adjustments. For commercial landlords, this includes capital allowances on qualifying plant and fixtures, which may not appear in quarterly updates.
The introduction of quarterly reporting also affects agent workflows. Landlords must provide digital authorizations for their accountants to submit updates, replacing paper forms with secure electronic permissions. Both landlords and agents need coordinated processes to prepare, review, and submit information accurately. Unlike the traditional January deadline for Self-Assessment, MTD introduces four quarterly deadlines plus the final declaration, requiring new calendar management and ongoing data review.
Complying with MTD: Step-by-Step Guide
Transitioning to MTD requires careful planning and process changes. Landlords should consider it an operational transformation rather than a simple compliance task.
- Digital Record-Keeping – The first priority is adopting HMRC-approved software capable of capturing every property transaction, including income and expenses. Transactions must be clearly categorized, showing date, amount, description, and HMRC-specific classification. Income streams include base rent, service charges, insurance recoveries, utilities recharges, and lease premiums. Expenses cover property maintenance, professional fees, mortgage interest, management costs, and staff expenses.
- VAT Integration – Landlords who have opted to tax their properties face dual reporting requirements for Income Tax and VAT. The chosen software must handle VAT on service charges, mixed-use apportionments, and separate yet linked audit trails to ensure compliance with both regimes.
- Quarterly Reporting – Each property business requires separate quarterly updates. For landlords with multiple portfolios, this could mean submitting multiple quarterly returns annually. These submissions are cumulative, meaning later quarters incorporate earlier data and allow corrections for past errors.
- Year-End Finalisation – After the final quarter, landlords must prepare a complete declaration covering adjustments not captured in quarterly updates. This includes timing differences, accruals, prepayments, capital allowances, and the integration of property income with other personal or business income. Reliefs such as personal allowances and pension contributions are applied at this stage.
- Monthly Management Routines – Successful MTD compliance demands monthly preparation. Landlords should reconcile bank accounts, review service charge variances, maintain organized digital records, flag anomalies, and reconcile VAT where applicable.
- Quality Control – Given the high stakes in commercial property, robust quality control is essential. Processes should include drafting updates, internal review, client or director approval, submission tracking, and thorough documentation to ensure accuracy and maintain an audit trail.
Choosing HMRC-Compatible Software
HMRC-compatible software must meet technical standards for digital record-keeping and submission. However, commercial landlords require more than mere compliance. Key functionality includes management of service charges, turnover rent calculations, VAT compliance for opted properties, multi-property and tenant management, and strong audit trails. Software integration with bank feeds and property management systems is critical to streamline reporting and reduce errors.
RentalBux, fully authorized by HMRC, supports UK and foreign property income as well as self-employment income, and offers advanced property management features designed for commercial portfolios. Clients of UK Property Accountants can access RentalBux modules free of charge until March 2028, enabling a smooth transition to MTD compliance.
Exemptions: Who Can Opt-Out?
Exemptions fall into two main categories: income-based and digital exclusion.
- Income-Based – Landlords whose total qualifying income is below the relevant threshold are not mandated to comply. For those who fall below thresholds after previously being required to comply, the three-consecutive-years rule may remove the mandate if qualifying income remains below the threshold.
- Digital Exclusion – HMRC recognizes that some landlords cannot reasonably comply due to age, disability, remote location, or religious reasons. Applications require evidence, and circumstances must be updated if changes occur, such as gaining digital support or improved connectivity.
Some entities, such as companies awaiting Corporation Tax MTD or certain partnership structures, are outside MTD by design rather than exemption.
Conclusion
Making Tax Digital is no longer a distant prospect; it represents the future of HMRC’s approach to landlord taxation. For commercial landlords, success under MTD requires more than quarterly submissions, it demands a full digital approach to record-keeping, reporting, and business management. Those who invest early in digital readiness will benefit from improved financial oversight, streamlined processes, and stronger operational control. Delaying preparation risks disruption when the rules tighten.
Accountants and tax advisers are evolving from compliance checkers to process designers, technology partners, and financial interpreters. MTD is not an endpoint but the beginning of a wider, fully digital tax system. With the right software, planning, and processes, commercial landlords can navigate this transformation with confidence.
Sterling & Wells
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