Making Tax Digital Exemptions: What You Need to Know

Making Tax Digital Exemptions:

HMRC has recently published important guidance on how taxpayers can apply for Making Tax Digital exemptions for income tax if they are digitally excluded. Here’s what you need to know about digital exclusion.

What is Making Tax Digital for Income Tax?

MTD for income tax will be rolled out in phases for sole traders and landlords:

• April 2026: Applies to those with a qualifying income of £50,000 or more from 2024/25
• April 2027: Threshold drops to £30,000 or more from 2025/26
• April 2028: Threshold drops further to £20,000 or more from 2026/27

Once you are within the scope of MTD, you will need to use compatible software to maintain digital records and submit quarterly returns to HMRC.

Who Qualifies as Digitally Excluded?

According to legislation, you may be considered digitally excluded if:

• You are a practising member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
• It is not reasonably practicable for you to use electronic communications or keep electronic records due to reasons including age, disability, or location.

What Does Not Count as Digital Exclusion?

HMRC has made it clear that the following reasons alone will not qualify you for Making Tax Digital exemptions:

• Previously submitting paper tax returns
• Being unfamiliar with accountancy software
• Having only a small number of digital records to create each year
• Concerns about the time or cost pressures of using MTD

Already Exempt from MTD for VAT?

If you have already been granted an exemption from sending VAT returns using MTD-compatible software, the process is more straightforward. Contact HMRC with your National Insurance and VAT registration numbers, along with confirmation that your circumstances have not changed. If nothing has changed, HMRC will confirm your MTD income tax exemption as well.

Note: If your VAT exemption is solely due to an insolvency procedure, you will still need to comply with MTD for income tax.

How to Apply for Making Tax Digital Exemptions

Applications should be made in advance of your relevant start date by calling or writing to HMRC. You (or someone acting on your behalf, such as your accountant) will need to provide specific information detailed in HMRC’s guidance.

Key Timeline Recommendations:

• HMRC aims to respond within 28 days of receiving your application
• You will have 30 days from the date of their letter to appeal if you disagree with their decision
• If you are due to enter MTD from April 2026, submit your application by the end of January 2026 to have certainty before the start date

What to Do While You Wait

HMRC recommends you continue to prepare for MTD while awaiting confirmation of your exemption status. However, the key step tax experts suggest is to ensure your written accounting records are kept current, making it easier to convert them to digital format if needed in the future.

Automatic Making Tax Digital Exemptions

Some taxpayers are automatically exempt from MTD for income tax in specific circumstances, including:

• Trustees or personal representatives completing a tax return for someone who has died
• Those without a National Insurance number on 31 January before the start of the tax year
• Lloyd’s members (for their underwriting business only)
• Non-resident companies

HMRC will provide further information on additional exemptions and deferrals in the future.

If Your Circumstances Change

Voluntarily signed up but now digitally excluded? Opt out through your HMRC online services account.

Previously exempt, but circumstances have improved? Inform HMRC if you are no longer digitally excluded. Your exemption confirmation letter will explain the process.

Need Help With Making Tax Digital Exemptions?

If you have an accountant who maintains digital records and files quarterly updates on your behalf, speak with them first. You may not need to apply for an exemption at all.

Understanding the Making Tax Digital exemptions is crucial for anyone who faces genuine barriers to MTD compliance. If you think Making Tax Digital exemptions might apply to your situation, act now. The application process takes time, and getting your exemption confirmed before the deadline will give you peace of mind.

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