HMRC has opened the exemption application process for sole traders and landlords who will be brought into Making Tax Digital (MTD) for Income Tax from 6th April 2027.
The next phase of the MTD rollout applies to individuals whose qualifying income from self-employment and property exceeded £30,000 in the 2025/26 tax year. Those who believe they cannot reasonably meet the digital requirements can now ask HMRC for an exemption, although the eligibility criteria are deliberately limited.
Our MTD experts summarise what you need to know.
What will the obligations be for MTD for Income Tax?
Under MTD for Income Tax, affected sole traders and landlords will need to use compatible software to keep digital records of their self-employment and property income and expenses. These will be used to:
- maintain and correct digital records;
- send quarterly summaries of income and expenses to HMRC; and
- submit their annual tax returns through compatible software.
The rules are being introduced in stages. They already apply from 6th April 2026 to those with qualifying income above £50,000. The threshold falls to £30,000 from 6th April 2027 and to £20,000 from 6th April 2028.
Partnerships will also enter MTD for Income Tax in future, but HMRC has not yet confirmed when their obligations will begin.
Who can apply for an MTD exemption?
An MTD exemption may be available where it is not reasonable or practical for someone to use compatible software. HMRC will consider each application on its individual facts, including the applicant’s personal circumstances and the support available to them.
Digital exclusion may arise because of age, disability, location, religious beliefs or another factor that makes it unreasonable for the taxpayer to keep digital records and report through software. An authorised agent, friend or family member can apply on the taxpayer’s behalf, but the decision will still be based on the taxpayer’s own circumstances.
If an accountant or tax agent can meet the MTD requirements for the taxpayer, an exemption may not be necessary. It is therefore important to discuss the available options before applying with our MTD specialists here if you have any questions.
Automatic exemptions for MTD
Some taxpayers do not need to apply for MTD exemption because HMRC treats them as automatically exempt. This includes individuals whose qualifying income is £20,000 or less and those who do not have a National Insurance number before the start of the relevant tax year.
Automatic exemptions also apply in certain role-based circumstances, including non-resident companies filing an SA700 and trusts filing an SA900, such as charitable trusts and trusts of non-registered pension schemes. These taxpayers must continue to submit self-assessment returns in the usual way.
Exemptions from MTD for VAT
An existing exemption from MTD for VAT does not automatically carry across to MTD for Income Tax.
Taxpayers should contact HMRC and provide their National Insurance number, VAT registration number and the reason for their exemption. If their circumstances have not changed, HMRC can confirm that the exemption also applies to MTD for Income Tax.
Factors that do not qualify for MTD exemption
- A history of filing paper tax returns;
- Lack of prior knowledge on accounting software;
- Having only a small number of digital records to create; or
- Additional time or cost involved in signing up for and using MTD.
These factors alone do not typically qualify for digital exclusion. Applicants should explain clearly why using compatible software is not reasonable for them and provide relevant detail about their circumstances.
When should you apply for MTD exemption?
HMRC recommends applying before the date on which you are required to use MTD for Income Tax. Taxpayers entering the regime from 6th April 2027 can apply now. Those due to enter from 6th April 2028 should apply in line with HMRC’s guidance for their start date.
If you are already using MTD and your circumstances change, you must continue meeting the digital requirements while HMRC considers your application. A decision can take several weeks, so it is important to continue keeping records and sending updates until HMRC confirms that an exemption has been granted.
How our MTD experts can help
Preparing for MTD for Income Tax involves more than choosing the right software. You will need to understand when the rules apply, put reliable record-keeping processes in place and consider whether an exemption is appropriate for your circumstances. Our tax specialists can help you assess your position, prepare for the transition and manage your ongoing reporting obligations.
To discuss how MTD for Income Tax could affect you or your business, please get in touch with your local PKF Smith Cooper team.
