If you own rental property, your bookkeeping just got more important. Making Tax Digital for Income Tax is live for landlords with gross rental income over £50,000, with the threshold dropping to £30,000 in 2027 and £20,000 in 2028.
This guide covers what you need to record, how to keep it, and how to set up a system that saves you time rather than costing you sleep.
What MTD actually requires
Under Making Tax Digital, you can’t just keep receipts in a shoebox anymore. You need:
- Digital records of all your rental income and expenses
- Compatible software to store those records (spreadsheets alone don’t count for most purposes)
- Quarterly updates submitted to HMRC through the software
- A final declaration at the end of the year confirming your total figures
This applies per landlord, not per property. So if you own three properties, they get consolidated into one MTD reporting stream.
The income side: what to record
For each property, you need to record:
- Rent received (and the date received, not just the date it was due)
- Any deposits held (though these aren’t income until forfeited)
- Late payment charges if you levy them
- Insurance payouts related to the property
- Compensation payments from tenants for damage or breaches
The key principle: HMRC wants to see the cash flowing in and out, not just what was invoiced. Late rent counts when it arrives, not when it was due.
The expense side: what you can actually claim
This is where landlords lose money most often, by not claiming everything they’re entitled to. Common allowable expenses:
Property running costs
- Buildings and contents insurance
- Ground rent and service charges
- Council tax (if you’re paying it during void periods)
- Utility bills (if you’re paying them, e.g. for HMOs)
- Cleaning and gardening between tenancies
Repairs and maintenance
- Fixing damaged fixtures and fittings
- Repainting between tenants
- Boiler servicing and gas safety checks
- Roof repairs, plumbing, electrical work
The line between repairs (allowable) and improvements (not immediately allowable) matters here. Replacing a broken boiler with a like-for-like model is a repair. Upgrading to a bigger, better system is an improvement.
Professional and legal fees
- Letting agent fees
- Legal fees for tenancy agreements (usually)
- Accountancy fees
- Property inspections and inventories
Finance costs
For individual landlords, mortgage interest is no longer deductible from rental income. Instead, you get a 20% tax credit against your rental profit. This is one of the biggest recent changes and catches out landlords who haven’t updated their tax approach.
For landlords who hold property through a limited company, mortgage interest is fully deductible from company profits. Which is one of many reasons the incorporation question keeps coming up for larger portfolios.
Wear and tear (for furnished lets)
You can claim the actual cost of replacing furniture, fittings, and appliances in furnished lets. This is called the Replacement of Domestic Items relief. First purchases aren’t allowable (that’s a capital cost). Replacements are.
Setting up your system
The businesses (and landlords) that find MTD painless share three habits:
1. A dedicated bank account per property (or at least a landlord account)
Every rental payment lands in the property account. Every property expense comes out of it. This makes bookkeeping a matter of categorising bank transactions rather than remembering what happened three months ago.
2. Digital records from day one
Take photos of every receipt. Save them into a folder per property, or better, feed them straight into your bookkeeping software. HMRC needs digital records anyway. Building the habit now is easier than backfilling later.
3. A monthly rhythm, not an annual scramble
Set aside an hour a month to reconcile the accounts, categorise transactions, and check nothing’s drifted. Compare that with the alternative of trying to remember 12 months of transactions in one January weekend.
Software worth considering
Any MTD-compatible software will do the job, but some suit landlords better than others:
- Xero and QuickBooks are the two most popular general options. Both have property-specific features.
- Landlord Vision is built specifically for landlords with multiple properties.
- FreeAgent is included free with a NatWest business account and works well for smaller landlords.
The right software is the one you’ll actually use consistently. Fancy features you never touch don’t help.
Common landlord bookkeeping mistakes
- Mixing personal and rental spending. Running everything through your personal account makes bookkeeping ten times harder. Get a separate account.
- Forgetting agency fees paid gross. If your letting agent takes rent, deducts their fee, and forwards the net amount, HMRC still wants to see the gross rent and the fee as separate figures.
- Not tracking mileage. If you drive to properties for inspections, viewings, or repairs, you can claim mileage at the HMRC rate (currently 55p per mile). Small, but adds up over a year.
- Ignoring the year-end review. Even outside MTD, sitting down properly at the end of the tax year to check everything’s captured is worth an hour of your time.
The bigger picture
Being a landlord is running a business, whether or not that’s how it started. And a business needs bookkeeping.
The landlords who thrive under MTD are the ones who already had reasonable systems in place. The ones who struggle are the ones treating rental income as a side thing that doesn’t need proper records.
Getting the system right this year, before the MTD net widens further in 2027 and 2028, is far easier than doing it under deadline pressure.
Landlord and not sure your setup is ready for MTD? Message us and we’ll help you sort it. We deal with landlords every week, and we can get a proper system running before the next quarterly deadline.
