If you or your clients may fall within the MTD regime from April 2026 onward, it’s vital to understand when an exemption can apply — and act promptly.

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What Is “Making Tax Digital” — Briefly

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Making Tax Digital (MTD) is HMRC’s push to modernise tax reporting by requiring businesses, landlords, and self-employed individuals to keep digital records and submit returns electronically using compatible software (rather than paper or spreadsheets).

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Under MTD for Income Tax (also known as “MTD IT / MTD for ITSA”), people with qualifying income above certain thresholds will have to send periodic updates and a final declaration via digital means. The rollout is phased, with different income thresholds applying in different tax years.

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When Does MTD IT Start, and Who Is Affected?

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According to updated guidance:

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• From 6 April 2026, taxpayers with qualifying income over £50,000 will be in scope.

• From 6 April 2027, the threshold drops to £30,000.

• From 6 April 2028, the threshold further reduces to £20,000.  

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If your income is below those levels in the respective years, you may not (yet) be required to join MTD, or may qualify for an “income-based” exemption in that year.  

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However, having qualifying income above the threshold doesn’t automatically mean no option for exemption — there are routes to be exempted in certain cases.

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Types of Exemptions & Deferrals Under MTD IT

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HMRC’s updated framework divides exemptions into automatic / statutory, permanent, deferrals, and those requiring application.  

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1. Automatic / Statutory Exemptions

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No application needed — the law exempts certain categories by default. Examples include:

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• Trustees (including charitable trustees)  

• Individuals without a National Insurance number (for a tax year in which they did not have one by 31 January before the tax year)  

• Personal representatives of deceased persons  

• Non-resident companies  

• Lloyd’s members (in relation to personal underwriting)  

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2. Permanent Exemptions

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These are long-term exemptions built into the legislation. Examples:

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• Individuals holding a power of attorney.

• Non-UK resident entertainers with no other qualifying income.

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3. Deferrals

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Certain groups will be deferred — i.e. they will not be required to comply immediately, but only from a later date. Examples:

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• Ministers of religion  

• Lloyd’s underwriters (in some cases)  

• Taxpayers entitled to the Blind Person’s Allowance

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These groups may be given a later “start date” under MTD IT rather than being exempt forever.  

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4. Exemptions Requiring Application (“Possibles”)

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These are the scenarios where you or your client must submit an application, and HMRC will assess whether to grant an exemption. Key cases include:

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• Digital exclusion — inability to use digital tools reasonably (poor or no internet, disability limiting digital use, remote location, etc.)  

• Religious objections — if your beliefs are incompatible with using electronic communications or keeping electronic records  

• Existing MTD for VAT exemption — you might seek to extend or convert that to MTD IT exemption (though it’s not automatic)

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Applying for an Exemption (Digital Exclusion Route)

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HMRC has now published guidance on how to apply for exemption on the grounds of digital exclusion, so taxpayers / agents can act ahead of enforcement.

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Here are the key steps and considerations:

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1. Check whether you already have an exemption

If some automatic/persistent exemption or deferral applies in your case, you may not need to apply.  

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2. If already exempt under MTD for VAT

Contact HMRC (by phone or in writing) to ask if the same exemption can apply for MTD IT. Explain your circumstances, changes if any, and request confirmation. HMRC aims to issue a quick decision.

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3. If not already exempt under VAT

Submit your exemption application (via phone or writing) to HMRC, detailing your case, with supporting evidence, especially around digital exclusion.  

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4. Timeframes & appeals

HMRC aims to process applications within 28 days of receipt.  

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If HMRC refuses, you have a right to appeal once you receive the decision letter.

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5. Continue preparing for MTD while application is pending

Importantly — even after applying, you must treat the matter as if you are not exempt until HMRC confirms otherwise. In other words, you should continue planning for digital compliance so you're ready.

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What HMRC Now Looks for in Exemption Applications

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When assessing applications, HMRC’s guidance reveals a few critical test points:

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• “Reasonably practicable” vs “practicable”: You must show that using digital methods is not reasonably practicable in your specific circumstances, not simply inconvenient.

• Nearby alternatives: HMRC may consider whether digital access is possible via a suitable alternative location (e.g. library, community centre) — absence of access at home or business isn't always enough if alternatives exist.  

• Consistency of belief / behaviour: For religious objections, the prohibition must apply broadly (i.e. using digital in personal life would also be incompatible) — you can’t argue exemption for tax record-keeping if you regularly use online banking, shopping, etc.

• Change of circumstances: HMRC may reassess exemptions if your situation changes (e.g. access to internet improves) or if evidence is weak.  

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Key Takeaways & Action Steps (for Bookkeepers, Agents & Taxpayers)

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• The rules on MTD IT exemptions have been clarified and expanded in new draft legislation and updated HMRC guidance as of 21 July 2025.  

• Some taxpayers are automatically exempt, others are permanently exempt, and certain groups have deferrals — no application needed in those cases.

• For those facing digital exclusion or religious objections, applications can already be made for MTD IT exemptions in many cases, especially for the April 2026 entry point.

• If your client is already exempt under MTD VAT, you should approach HMRC to see if that exemption can carry over to MTD IT.  

• Always document and support your case thoroughly, especially for digital exclusion claims.

• Do not delay — applying early gives your client or yourself a better chance of securing an exemption or at least being aware before deadlines loom.

• Until you receive confirmation from HMRC, treat the case as non-exempt: continue making plans for digital compliance.

• Keep an eye on HMRC’s evolving guidance — the rules for MTD IT continue to develop

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Need more information or assistance, contact us! info@xenithwealth.co.uk