Not everyone who falls near the Making Tax Digital rules will actually have to use Making Tax Digital for Income Tax.
HMRC’s current guidance confirms that some people are exempt automatically, while others may need to apply for an exemption.
This is an important distinction.
A lot of business owners hear the word exemption and assume it means HMRC will work everything out for them automatically. In some cases that is true. In others, it is not.
If you are a sole trader or landlord and think MTD may be difficult or unsuitable for you, it is worth understanding the difference before the deadlines get closer.
What Does Exemption From MTD Actually Mean?
If you are exempt from Making Tax Digital for Income Tax, you do not have to use the MTD system.
HMRC says that if you are exempt, you will not have to use Making Tax Digital for Income Tax, but you must continue to report your income and gains in a Self Assessment tax return as normal.
So exemption does not mean you stop dealing with tax. It means you stay outside the MTD reporting process.
Are Any Exemptions Automatic?
Yes.
HMRC says some exemptions are automatic. These are based on information HMRC already holds, so you do not need to contact HMRC or submit an application.
Current examples include:
- if your qualifying income is £20,000 or less
- if you do not have a National Insurance number before the start of the tax year
- partnerships, which do not currently need to use Making Tax Digital for Income Tax
For sole traders and landlords, the £20,000 point is especially important. HMRC says you are automatically exempt if your qualifying income is £20,000 or less.
That does not mean everyone above £20,000 must join immediately. The phased start dates still matter. But it does mean very low qualifying income has a specific exemption built into the rules.
Are Some Exemptions Temporary?
Yes.
HMRC says exemptions can be either:
- permanent, unless your circumstances change
- temporary, lasting until April 2027 at the earliest
This matters because some people may be outside MTD for now without being outside it forever.
If you are relying on an exemption, it is important to understand whether it is permanent or just gives you more time.
What If I Am Digitally Excluded?
Digital exclusion is one of the main reasons a person may be exempt, but this is usually not automatic.
HMRC says if you are not automatically exempt, you need to apply for an exemption by contacting HMRC. The current application guidance explains that digitally excluded exemption may be permanent depending on your circumstances.
In practical terms, this may be relevant if using digital tools is not reasonably possible for you because of your circumstances, health, disability, location or another serious barrier.
But you should not assume that difficulty automatically equals exemption. HMRC expects you to apply and explain why the exemption should apply.
Can My Accountant Deal With MTD for Me Instead?
Possibly, and this is an important point.
HMRC says that if your agent uses compatible software to keep digital records and submits them to HMRC on your behalf, they may be able to meet the MTD requirements for you.
That means some people who think they need a digitally excluded exemption may not actually need one if their accountant can manage the process properly for them.
This is one reason it makes sense to speak to an accountant before assuming an exemption is your only option.
When Do You Need to Apply?
HMRC says you should apply before you need to use Making Tax Digital for Income Tax.
The current guidance says that if you are applying because you think you are digitally excluded, you should apply based on when MTD will apply to you.
HMRC’s current timetable says:
- if you need to use MTD from 6 April 2026, you can apply now
- if you need to use MTD from 6 April 2027, you should apply from summer 2026 onwards
- if you need to use MTD from 6 April 2028, you should apply from summer 2027 onwards
So this is not something to leave until the week before your first update is due.
How Do You Apply?
HMRC says you must either call or write to HMRC to apply.
If you write, HMRC says you should use a clear subject title depending on the type of application, including:
- “Making Tax Digital for Income Tax – digitally excluded application”
- “Making Tax Digital for Income Tax – exemption application”
HMRC says it aims to respond within 28 calendar days of receiving the application, although it may take longer if more information is needed.
What Information Will HMRC Ask For?
HMRC says an applicant will need to provide basic identifying details and explain why they think an exemption applies.
For digitally excluded exemption, HMRC says you may also need to explain:
- how you currently submit a tax return
- why you think you are digitally excluded
- whether you have an agent and what that agent will do
- any additional needs that HMRC should know about
So this is not a box-ticking exercise. The application needs a clear explanation.
What If HMRC Refuses the Application?
If HMRC does not accept your application, the decision letter should explain why and how to appeal.
For decisions received on or after 1 April 2026, HMRC says you can appeal up to 30 days after the date on the letter.
That makes timing important. If you think the decision is wrong, you need to act promptly.
Common Mistakes to Avoid
Some of the biggest mistakes in this area are:
- assuming an exemption is automatic when it actually needs an application
- assuming exemption means no tax return is needed
- waiting too long to apply
- overlooking the option of having an accountant deal with MTD on your behalf
- assuming a temporary exemption means you will never need to prepare for MTD
The Practical Takeaway
Yes, some sole traders and landlords can be exempt from Making Tax Digital for Income Tax.
But the reason matters. Some exemptions are automatic. Some need an application. Some may only delay MTD rather than remove it permanently.
If you think MTD may not be workable for you, it is worth checking your position early so you do not make the wrong assumption and leave it too late.
How AAR Certified Accountants Can Help
We help sole traders and landlords work out whether MTD applies, whether an exemption may be available, and whether there is a practical alternative to exemption through the right accounting support.
If you are unsure whether you may be exempt from MTD Income Tax, AAR Certified Accountants can help you review your position and decide the best next step.
Disclaimer: This article is for general information only and does not constitute personalised tax advice. HMRC guidance and legislation can change, and the right approach depends on your circumstances.