It is worth knowing who can qualify for an exemption, how to apply, and the responsibilities of taxpayers under MTD.

Making Tax Digital for Income Tax (MTD for ITSA) initiative aims to streamline tax reporting by requiring digital record-keeping and submissions for qualifying taxpayers.

However, not every taxpayer is required to participate, as legislation provides exemptions for individuals facing personal, health or technological challenges.  Understanding these exemptions is crucial to ensure compliance while avoiding unnecessary burdens. Exemptions provide a fair and structured way for taxpayers to continue fulfilling their responsibilities without undue hardship.

What is Making Tax Digital?

Under MTD for Income Tax, sole traders and landlords whose income is above a qualifying amount threshold are required to:

• keep digital records of their income and expenses
• submit quarterly income tax updates to HMRC using software that is compatible with MTD systems
• ensure that all tax submissions are accurate and up to date.

The ‘qualifying amount’ for a tax year means:

• For the tax year 2026/27, the threshold is £50,000 based on the gross income for the tax year 2024/25.
• For the tax year 2027/28, the threshold is £30,000 based on the gross income for the tax year 2025/26.
• For the tax year 2028/29, the threshold is £20,000 based on the gross income for the tax year 2026/27 and any subsequent tax year.

From the 2029/30 tax year onwards, taxpayers who have already been using Making Tax Digital (MTD) for the previous three years will continue to need to follow digital reporting rules. This only applies if their income for each of those three years stayed below the set threshold.

Which exemptions are available?

There are two types of exemptions available – temporary and permanent.

A permanent exemption is granted where the taxpayer’s circumstances are unlikely to change, meaning digital compliance will remain impractical on an ongoing basis. This typically applies in cases such as long-term disability, advanced age with no realistic prospect of digital engagement, or deeply held religious objections to using technology. Once agreed, HMRC will generally not require the taxpayer to join MTD in future unless their circumstances materially change.

Additionally, taxpayers are automatically exempt and do not need to use Making Tax Digital for Income Tax in their role as a:

• person filing on behalf of non-resident company 
• trustee, including a charitable trustee or trustee of non-registered pension scheme 
• personal representative of someone who has died.

By contrast, a temporary exemption applies where the inability to comply is expected to be short-term. For example, this could include a period of serious illness, a temporary lack of internet access, or transitional difficulties in adopting compatible software. In such cases, HMRC may grant an exemption for a defined period, after which the taxpayer is expected to become compliant with MTD requirements.

Furthermore, the following taxpayers are deferred until at least April 2027:

• taxpayers claiming averaging adjustments, including farmers, musicians, writers and other creative artists
• taxpayers claiming qualifying care relief (for example, foster carers) who would otherwise fall within MTD due to another source of qualifying income
• taxpayers with income from trusts or estates, whether received as a beneficiary or as the settlor of a settlor-interested trust
• taxpayers required to file non-residence (SA109) supplementary pages with their tax return
• visiting performers (non-resident entertainers and sportspeople) who would otherwise be within MTD due to another UK source of qualifying income.

Agents should regularly review clients on temporary exemptions to determine when they should be brought into MTD, while ensuring that permanent exemptions remain valid and appropriately documented.

Who can apply for an exemption?

While MTD is mandatory for qualifying individuals, Part 7 of The Income Tax (Digital Obligations) Regulations 2026 highlights various circumstances where exemptions can be granted to taxpayers who can demonstrate that:

• digital requirements are not practical due to age, disability, or other personal circumstances
• the individual is seriously ill or facing circumstances that make digital reporting impossible
• the taxpayer has religious beliefs that prevent the use of digital tools
• other exceptional circumstances make compliance unreasonable, such as living in a remote area without internet access.

It is important to note that claiming an exemption is not automatic. Taxpayers must apply to HMRC and provide evidence supporting their case. HMRC evaluates each application individually to ensure that exemptions are granted only when genuinely warranted.

How to apply for an exemption

The process for obtaining an exemption from MTD for Income Tax is straightforward:

• applications must be made as explained on gov.uk, through the Agents Dedicated telephone line or in writing
• provide personal and tax information, including Unique Taxpayer Reference (UTR), National Insurance number, and relevant details about business or property income
• explain the reason for exemption outlining why MTD requirements would be impractical or burdensome. Include supporting evidence if applicable, such as medical documentation or statements regarding personal circumstances
• once the application is submitted, HMRC will review the submission and notify the taxpayer of the outcome. Exemptions can be granted temporarily or permanently, depending on the nature of the circumstances.

Key considerations for exemption applications

When applying for an MTD exemption, there are several key considerations to keep in mind:

• applications should be made before the start of the tax year in which MTD would otherwise apply. Retroactive exemptions are generally not granted unless there are exceptional reasons
• providing clear and relevant evidence significantly increases the likelihood of approval. This can include medical records, letters from social services, or documentation showing lack of internet access
• even with an exemption, taxpayers are still required to maintain accurate records and submit a traditional self-assessment tax return by the usual deadlines
• some exemptions are time-limited and may require renewal. HMRC will notify taxpayers if their exemption status is set to expire.

Benefits of applying for an exemption

Applying for an exemption allows individuals to:

• avoid the technical challenges of using digital tax software
• prevent potential penalties for failing to meet MTD requirements
• ensure that tax compliance remains manageable without undue stress or complexity.

Responsibilities without an exemption

MTD for ITSA is live now!

For taxpayers who are not exempt, participation in MTD for Income Tax is mandatory. Non-compliance can result in penalties, including fines for late or inaccurate submissions. Therefore, it is critical to determine eligibility for an exemption before the deadlines approach.

Practitioners should register affected clients as soon as possible to avoid last-minute issues. Step-by-step guidance is provided, and registration takes only a few minutes.

In summary

By understanding the eligibility criteria and application process, taxpayers can ensure they remain compliant while avoiding unnecessary digital requirements.

Useful resources

Visit ACCA's Making Tax Digital hub