Will Making Tax Digital Change Your Tax Bill?

It is the question on almost every landlord's mind as Making Tax Digital approaches: will I end up paying more tax? With HMRC rolling out mandatory digital reporting from April 2026, the fear that quarterly submissions will somehow inflate your tax bill is widespread — and understandable. After all, when the government introduces a new system, it rarely works out cheaper for taxpayers. Or does it?

The short answer is reassuring: MTD does not change what you owe in tax. It changes how you report your income and expenses to HMRC. The tax rules, rates, allowances, and deductions that determine your liability remain exactly the same. Your Self Assessment calculation will work identically whether you file on paper, through the current online system, or via MTD-compatible software.

That said, the picture is more nuanced than a simple 'nothing changes.' Better record-keeping — which MTD effectively forces — can work in your favour by helping you claim every legitimate deduction. Equally, if your previous reporting was, shall we say, approximate, more transparent quarterly data could reveal discrepancies. This article walks through exactly what to expect, with real numbers and honest scenarios.

What MTD Actually Changes

Making Tax Digital changes the mechanism of reporting, not the substance of taxation. Instead of submitting a single Self Assessment tax return once a year, you will send HMRC quarterly updates summarising your property income and expenses. At the end of the tax year, you submit a final declaration confirming the figures. The quarterly updates are cumulative — each one builds on the last — and the final declaration replaces what was previously your Self Assessment return for property income.

Crucially, the quarterly updates are summaries, not full accounts. You report total income received and total expenses by category for each quarter. HMRC is not asking for individual receipts or transaction-level detail in the submissions themselves — though you must keep digital records that support the figures, and HMRC can request these during an enquiry.

The other key change is that all record-keeping must be digital. You cannot maintain a paper ledger or a shoebox of receipts as your primary records. You need MTD-compatible software that can store your transactions digitally and submit updates to HMRC via their API. This is where the cost element comes in — but more on that later.

What MTD Does NOT Change

To put any lingering doubts to rest, here is a clear breakdown of what remains completely unchanged under Making Tax Digital:

The tax calculation engine is identical. MTD simply feeds data into that engine more frequently and in a standardised digital format. Think of it as upgrading from posting a letter to sending an email — the message content does not change, just the delivery method.

How Better Records Could Reduce Your Bill

Here is the genuinely good news: many landlords are currently under-claiming legitimate expenses. Research from HMRC's own studies suggests that a significant number of individual landlords miss out on deductions they are perfectly entitled to, simply because they lose receipts, forget about smaller costs, or do not realise certain expenses qualify. MTD's requirement for digital record-keeping throughout the year makes it far harder to overlook these claims.

When you record expenses as they happen — rather than trying to reconstruct a year's worth of spending every January — you capture everything. That £45 for a new set of keys, the £120 for an emergency plumber call-out on a Saturday, the £85 annual landlord insurance premium increase: individually small, but collectively significant.

Common expenses that landlords frequently forget to claim include:

• Travel costs to properties for inspections, maintenance, or tenant meetings — HMRC allows 45p per mile for the first 10,000 miles in a tax year
• Professional fees including letting agent commissions, accountancy fees, legal costs for tenant disputes or lease renewals, and landlord association membership
• Insurance premiums for buildings, contents, landlord liability, and rent guarantee policies
• Replacement of domestic items — cookers, fridges, carpets, curtains, beds, and other furnishings provided to tenants
• Maintenance and repairs — repainting, fixing guttering, boiler servicing, garden maintenance, and general upkeep
• Stationery, phone calls, and a proportion of broadband costs if used for property management
• Advertising costs for finding tenants, including online listing fees
• Council tax and utilities during void periods between tenancies
• Safety compliance costs — gas safety certificates, electrical inspection condition reports (EICRs), Energy Performance Certificates (EPCs), and smoke/CO alarm installation

A landlord with three properties who diligently tracks every expense might easily find an additional £1,500 to £3,000 in legitimate deductions compared to their previous approximate record-keeping. At the basic rate of 20%, that translates to £300 to £600 in tax savings per year — potentially enough to cover the cost of MTD software several times over.

How Better Records Could Increase Your Bill

Honesty requires acknowledging the other side. If you have been under-reporting rental income — whether deliberately or through sloppy bookkeeping — MTD's quarterly reporting and digital audit trail will make this significantly harder to sustain.

Consider common scenarios where income might have been understated in the past: cash payments from tenants that were not always recorded, informal arrangements with lodgers, income from short-term holiday lets that was treated as casual rather than taxable, or simply rounding figures down when completing the annual Self Assessment return.

With MTD, your software maintains a continuous digital record. Bank feeds automatically capture incoming payments. If HMRC's systems detect discrepancies between reported income and bank account activity — or between your quarterly updates and your final declaration — it becomes much easier for them to open an enquiry. The digital trail works both ways.

It is worth noting that this is not MTD increasing your tax — it is MTD making it harder to pay less than you genuinely owe. For landlords who have been fully compliant all along, this changes nothing. For those who have been less than meticulous, the adjustment may feel like a tax increase, but it is really a correction.

Real-World Scenarios

Let us look at three realistic examples to illustrate how MTD might affect different landlords' tax positions:

Scenario 1: Sarah — Tax Bill Stays the Same

Sarah owns two buy-to-let flats in Manchester, generating £18,000 per year in rental income. She has always used a spreadsheet to track income and expenses, claims £6,200 in allowable expenses, and reports everything accurately on her Self Assessment return. Her taxable property income is £11,800.

Under MTD, Sarah switches to digital software and submits quarterly updates. Her income is the same. Her expenses are the same. Her taxable profit is £11,800 — identical to before. The only difference is that she reports it four times a year instead of once. Her tax bill: unchanged.

Scenario 2: David — Tax Bill Goes Down

David owns a three-bedroom house in Bristol that he lets for £1,200 per month (£14,400 per year). He previously claimed around £3,000 in expenses on his Self Assessment, mainly mortgage interest relief and the annual gas safety certificate. His taxable property income was £11,400.

After adopting MTD software and recording expenses throughout the year, David captures costs he previously missed: £840 in mileage (1,867 miles at 45p), £350 for a landlord insurance policy, £480 for minor repairs he paid cash for and forgot about, £180 for his EICR, £150 for his letting agent's tenant-find fee, and £95 for his landlord association membership. His total expenses rise from £3,000 to £5,095.

David's taxable property income drops from £11,400 to £9,305 — a reduction of £2,095. At the basic rate of 20%, David saves £419 in income tax. His MTD software costs £240 per year, so he is £179 better off overall. Better record-keeping literally pays for itself.

Scenario 3: Karen — Tax Bill Goes Up

Karen owns a furnished holiday let in Cornwall and two standard buy-to-lets in Plymouth. Her actual rental income totals £42,000 per year, but she has historically reported approximately £38,000, partly because she received some payments in cash and partly because she rounded figures conservatively.

Under MTD, Karen's software connects to her bank accounts and automatically records all incoming payments. The quarterly updates show income of £10,500 per quarter — totalling £42,000. She can no longer understate her income without creating an obvious discrepancy between her bank records and her HMRC submissions.

Karen's taxable income increases by £4,000 (from £38,000 to £42,000, before expenses). As a higher-rate taxpayer, this costs her an additional £1,600 in tax per year. However, this is not MTD increasing her tax — it is MTD preventing her from under-paying. She was always liable for this amount; she was simply not declaring it.

The Revenue-Neutral Reality

For the vast majority of compliant landlords, MTD is revenue-neutral in terms of tax liability. Your rental income does not change. Your allowable expenses do not change. Your personal allowance does not change. The tax rates do not change. Therefore, your tax calculation produces the same result.

The only landlords who will see a meaningful change in their tax bills are those who either (a) start claiming expenses they were previously missing, which reduces their bill, or (b) start reporting income they were previously omitting, which increases it. Both of these are corrections to the accuracy of reporting, not changes to the tax system itself.

HMRC has been explicit about this. MTD is an administrative reform. It modernises the reporting infrastructure. It does not reform the tax code. Any changes to income tax rates, allowances, or property taxation rules would require separate legislation and would happen regardless of whether MTD existed.

Where MTD Does Cost Money

While MTD does not change your tax liability, it does introduce real costs that landlords need to budget for. These are administrative and compliance costs, not taxes — but they still come out of your pocket.

The total additional cost for most landlords is between £100 and £500 per year, depending on the software tier chosen and whether accountant fees change. For landlords with several properties and substantial expense claims, the tax savings from better record-keeping can more than offset these costs.

It is also worth noting that you may already be paying for accounting software or a spreadsheet-based system. If you switch to an MTD-compatible tool, the net additional cost may be minimal — you are replacing one cost with another, not adding an entirely new expense.

Making MTD Work in Your Favour

Rather than viewing MTD as a burden, treat it as an opportunity to tighten your financial management and maximise legitimate deductions. Here are practical steps to ensure MTD works for you rather than against you:

• Set up a dedicated bank account for each property (or at minimum one for all rental activity) to simplify income and expense tracking
• Connect bank feeds to your MTD software so transactions are captured automatically — no more lost receipts
• Photograph receipts immediately using your phone and attach them to transactions in your software
• Record mileage for every property visit — keep a simple log of date, destination, miles driven, and purpose
• Review expense categories quarterly before submission to ensure nothing has been miscategorised or missed
• Claim replacement of domestic items relief for any furnishings or appliances you replace for tenants
• Track void period costs separately — council tax, utilities, and insurance during empty periods are all allowable
• Discuss your MTD setup with your accountant or tax adviser before April 2026 to agree on responsibilities and workflow
• Consider the property allowance (£1,000) versus actual expenses — for low-expense properties, the flat allowance may give a better result
• Keep digital copies of all tenancy agreements, insurance policies, and contractor invoices as supporting evidence

The landlords who benefit most from MTD are those who embrace it early, set up robust systems before the deadline, and use the quarterly rhythm as a prompt to review their finances regularly. Quarterly reporting is not just a compliance exercise — it is four opportunities per year to check that your property business is running efficiently.

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