Making Tax Digital Exemptions to Know About [Guide]

Making Tax Digital (MTD) is reshaping how UK businesses and individuals report tax. While the goal is to modernise the system and reduce errors, not everyone is required to comply. There are important exemptions, deferrals, and edge cases that can significantly affect who qualifies for the new model.

Whether you’re a sole trader, landlord, accountant, or business owner, here are the most important exemptions to Making Tax Digital that you should be aware of.

Key points

• MTD doesn’t apply to everyone yet 🧾
  Making Tax Digital currently applies to VAT-registered businesses and has been phased in for Income Tax from April 2026. It doesn’t apply to Corporation Tax, which means limited companies still file CT600 returns as normal.
• There are two very different types of MTD exemption ⚠️
  Automatic exemptions apply if you are outside the rules by default, such as earning below the income threshold or falling into a specific excluded role. Applied exemptions require you to actively contact HMRC, explain your circumstances, and wait for approval. 
• Income thresholds are the most common reason people are exempt 📊
  For MTD for Income Tax, qualifying income is based on gross self-employment and property income, not profit. If you’re below the relevant threshold, you continue filing one annual Self Assessment return.
• Being exempt does not reduce your responsibilities or risk 🔎
  Exemptions can be reviewed or withdrawn if circumstances change, and they don’t affect your obligation to keep accurate records, file on time, and pay the correct tax. Assuming you’re exempt without written confirmation from HMRC can lead to penalties and compliance checks.
• ANNA can make digital compliance easier 🚀
  ANNA keeps your financial records organised automatically, tracks income and expenses, provides real-time tax estimates, handles digital VAT returns and supports MTD Income Tax requirements, reducing the admin involved in staying compliant. 

Understanding the scope of Making Tax Digital

Making Tax Digital is a framework that is being introduced gradually, tax by tax.

Currently, it applies to:

• MTD for VAT: mandatory for VAT-registered businesses
• MTD for Income Tax Self Assessment (MTD ITSA): rolling out from April 2026 for qualifying sole traders and landlords

As of 1 April 2026, HMRC’s free online service for filing Corporation Tax returns has closed. Limited companies now generally need to use commercial software to file their CT600 and supporting information, although this is separate from quarterly MTD reporting.

This distinction matters because exemptions differ depending on which tax you are managing.

The two types of exemption: Automatic vs applied

There are two distinct types of exemption:

• Automatic exemptions: These apply when your situation places you outside the scope of the rules from the outset. You don’t need to contact HMRC to claim them.
• Applied exemptions: These require you to formally request an exemption from HMRC. You must explain your circumstances and wait for approval.

Understanding which category you fall into is essential before making assumptions about compliance.

Automatic exemptions: No application needed

The most common automatic exemptions, including practical examples, are:

1. Income below the threshold (MTD for Income Tax)

If your qualifying income is below the current threshold, you aren’t required to join MTD for Income Tax.

Qualifying income is the combined gross income from:

• Self-employment
• UK property income

This refers to income before expenses. It doesn’t include employment income taxed via PAYE, dividends, or savings interest.

The current thresholds

MTD for ITSA is being rolled out in phases:

• From April 2026, MTD applies if your qualifying income exceeds £50,000
• From April 2027, the threshold reduces to £30,000
• From April 2028, MTD will apply to those whose qualifying income exceeds £20,000

If your income is below the relevant threshold, you should:

• Continue keeping records as you do now
• Submit one annual Self Assessment return
• Not file quarterly digital updates

2. Individuals without a National Insurance number

If you don’t have a National Insurance (NI) number, you can’t register for MTD for Income Tax. This exemption is automatically recognised by HMRC.

3. Certain roles and personal circumstances 

There are specific roles and tax situations that currently result in automatic exemption from MTD for Income Tax. These typically involve more complex reporting structures that HMRC hasn’t yet integrated into the MTD system, such as:

• Filing on behalf of a non-resident company
• Acting as a trustee or personal representative
• Being a Lloyd’s member reporting underwriting income
• Using specific supplementary pages as a minister of religion
• Claiming certain allowances, such as Blind Person’s Allowance or Married Couple’s Allowance (for those born before 6 April 1935)

Each of these automatically qualifies you for exemption from MTD for Income Tax, unless your personal income still triggers the regime otherwise.

Applied exemptions: When you must confirm your status with HMRC

You have to make a formal request to HMRC if you believe you are unable to comply with MTD. The most common applied exemptions are:

1. Digital exclusion (all MTD regimes)

This is the most well-known reason for exemption. It means that it’s not reasonably practicable for you to use:

• A computer, smartphone, or tablet
• Digital record-keeping
• Software compatible with MTD
• The internet

Reasons recognised by HMRC can include:

• Age-related difficulties with technology
• A disability or health condition that prevents the use of digital tools
• Mental incapacity or cognitive barriers

HMRC will interpret this strictly. The fact that something is inconvenient or time-consuming alone isn’t enough. You must be unable to reasonably use digital tools even with support from others.

2. Religious beliefs incompatible with digital tools

If you belong to a religious society or order whose beliefs prohibit the use of electronic communications, you can apply for exemption. HMRC recognises this, but will require an explanation and supporting evidence.

3. Location exemptions

If you have no access to the internet, a digital device, or a location where digital services can be accessed, HMRC may grant an exemption. This is separate from digital exclusion due to disability; it applies to geographic isolation or broadband unavailability.

4. Insolvency situations (MTD for VAT)

If your business is in an insolvency process, such as liquidation, administration, or bankruptcy, you can be exempt from MTD for VAT while the process is ongoing. Note that for Income Tax MTD, insolvency doesn’t automatically exempt you – you may still need to apply in your individual case.

5. Temporary exemptions for complex tax circumstances

For MTD for Income Tax, there are additional temporary exemptions available until April 2027 if your forthcoming return is likely to include:

• Income from trusts or estates (SA107)
• Averaging relief (e.g. farmers, creative artists)
• Qualifying care relief claims
• Other supplementary pages not usually included

In these cases, you should apply for exemption this year if you anticipate including such claims in the next year’s return. 

How to apply for Making Tax Digital exemptions

If you believe you qualify for an applied exemption, you must contact HMRC directly.

You’ll need to:

• Explain why it isn’t reasonably possible for you to comply
• Provide supporting details or evidence
• Wait for HMRC’s decision

You must continue to meet your normal tax deadlines while your application is being considered. If HMRC rejects your request, you have the right to appeal.

What happens if you think you’re exempt, but you’re not?

Many taxpayers misunderstand the exemption rules. If you mistakenly assume you’re exempt and do not comply with MTD:

• You could receive late filing penalties
• You might face errors due to incorrect reporting methods
• You could enter compliance investigations

It’s essential to apply for an exemption and receive written confirmation before assuming you don’t need to comply.

Practical considerations before relying on an exemption

Even where an exemption applies, it’s important not to rely on it as a long-term solution. Making Tax Digital exemptions are designed as safeguards for specific situations, not as a general alternative to digital record-keeping.

Exemptions can be reviewed and withdrawn

An exemption isn’t necessarily permanent. If your circumstances change, HMRC may expect you to comply with MTD in a future tax year.

This can happen if, for example:

• Your income rises above the relevant threshold
• Internet access improves in your area
• You gain practical support that makes digital tools usable

Exemption does not reduce your tax obligations

Being exempt from MTD doesn’t change what you owe or when you must file.

You are still responsible for:

• Keeping accurate records
• Submitting tax returns on time
• Paying the correct amount of tax

In practice, paper-based or non-digital systems can make it harder to spot errors, track liabilities, or respond quickly to HMRC queries. For some taxpayers, this increases stress rather than reducing it.

Using an accountant doesn’t transfer responsibility

Even if an accountant or agent submits returns on your behalf, the legal responsibility for compliance remains with you.

If you are exempt from MTD:

• Your agent must follow HMRC’s alternative submission processes
• These processes can be slower or more restrictive than digital routes

It’s important to understand that professional support doesn’t replace your underlying obligations.

MTD rules and exemptions may change

MTD isn’t static. As it expands (for example, further phases of Income Tax MTD), exemption rules will evolve, and thresholds may change.

Most observers expect:

• Continued tightening of digital expectations
• Broader acceptance of digital tools across all taxpayers
• Narrower exemption criteria over time

However, digital exclusion and genuine inability to use technology will most likely remain recognised bases for exemption.

How ANNA helps you stay compliant with Making Tax Digital

Making Tax Digital is much easier to manage when your records are accurate, complete, and kept up to date throughout the year. For many sole traders and landlords, MTD feels stressful because financial information is scattered across spreadsheets, bank statements, receipts, and invoices, making compliance harder than it needs to be.

ANNA is fundamentally different from traditional accounting tools. There’s nothing complex to set up, no manual bookkeeping, and no steep learning curve. 

ANNA works quietly in the background, automatically organising your finances, keeping your digital records compliant, and helping you stay prepared for MTD requirements.

ANNA’s key features for MTD include:

• Automatic expense capture and categorisation: Every transaction is recorded and categorised automatically, helping you maintain clean digital records that meet HMRC expectations
• Real-time tax estimates: See an up-to-date view of how much tax you’re likely to owe, so quarterly updates or annual returns never come as a surprise
• Smart tax pots: Automatically sets aside money for tax, making it easier to plan for payments without last-minute stress
• Smart invoicing: Create, send, and chase invoices, with payments automatically matched to your records for accuracy and completeness
• Built-in UK business account: Manage payments, spending, and record-keeping in one place, reducing the risk of missing or duplicated data
• MTD Income Tax Self Assessment support: Keeps compliant records and helps you stay organised for quarterly updates under MTD for Income Tax
• Automated VAT returns: Calculates and submits VAT returns digitally, supporting compliance with MTD for VAT
• Automated reminders: Tracks key deadlines and alerts you in advance, so nothing slips through the cracks

So register with ANNA today, and turn Making Tax Digital from a compliance burden into just another task that runs in the background.