On 29 September 2025, HMRC updated their ‘Find out if you can get an exemption from Making Tax Digital for Income Tax’ guidance with information about applications that needs to be made on the grounds your clients has a digital exclusion.
Part of the vital preparations for the upcoming MTD IT obligations will be identifying clients that are in scope. Of course, the level of ‘qualifying income’ is a major consideration:
- From 06 April 2026 (where this is more than £50,000);
- From 06 April 2027 (where this is more than £30,000); and
- From 06 April 2028 (where this is more than £20,000)
Then, we move onto whether an exemption from MTD ITSA reporting obligations exist. Exemptions have always existed, but announcements and draft legislation released on 21 July 2025 clarified and expanded the rules on deferrals and exemptions. Some will apply automatically, while others require an application once the process opens.
There are different types of exemptions:
Automatic
This is where there is no requirement to make an application and the following are automatically exempt:
- A trustee, including a charitable trustee or a trustee of non-registered pension schemes;
- A person without a National Insurance number (but only for a tax year where there is not National Insurance number on 31 January before the start of that tax year);
- Personal representative / s of someone who has died;
- Lloyd’s members, in relation to a personal underwriting business; and
- Non-resident companies
Permanent
There will also be the following permanent exemptions, included in the draft legislation:
- Individuals with power of attorney; and
- Non-UK resident entertainers with no other qualifying income
Deferrals
There will be some taxpayer groups who will have a deferral date until at least 2029 according to the draft legislation (but not the guidance). These include:
- Ministers of religion;
- Lloyd’s underwriters; and
- Taxpayers receiving the Blind Person’s Allowance
Possible
The following may be exempt if an exemption is granted upon application:
- The digitally excluded; including
- A practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records
The above fall under the overarching banner of digital exclusions. Plus, there is the possible exemption that may be granted if an existing exemption exists for Making Tax Digital for VAT (MTD for VAT).
In summary, there are two possible MTD IT exemption routes:
1. Where this is not a requirement to make an application (automatic, permanent and deferrals);
2. Where this IS a requirement to make an application (the ‘possibles’ above including where an exemption exists for MTD for VAT)
On 29 September 2025, HMRC updated their ‘Find out if you can get an exemption from Making Tax Digital for Income Tax’ guidance with information about applications that needs to be made on the grounds your clients has a digital exclusion.
If you are acting as their authorised agent, you will be able to do this.
For Bookkeepers
HMRC’s ‘Find out if you can get an exemption from Making Tax Digital for Income Tax’ guidance was updated to clarify the definition of digitally excluded for MTD ITSA. This advises that applications for exemptions on the grounds of digital exclusion can be made now to avoid MTD ITSA obligations from April 2026. For taxpayers joining the regime later, maybe because of the lowering of the qualifying income threshold:
- From 06 April 2027, applications can be made from summer 2026 onwards;
- From 06 April 2028, applications can be made from summer 2027 onwards
HMRC published new guidance ‘Apply for an exemption from Making Tax Digital for Income Tax if you are digitally excluded’ which explains how to apply. This explains two actions but, importantly, if you have a client that is digitally excluded from MTD for VAT, this will not automatically carry forward to MTD ITSA:
1. If your client IS exempt from MTD for VAT, contact HMRC by telephone or in writing so they can confirm whether this also applies to MTD ITSA. HMRC will ask questions about the MTD for VAT exemption and whether there has been a change in circumstances. HMRC advise that this route should result in a quick decision letter;
2. If there is NOT a current MTD for VAT exemption, contact HMRC by telephone or in writing to provide details to support the case for a digital exclusion. You may need to provide supporting evidence and, once your case is assessed, HMRC will send a decision letter
HMRC says that it will aim to process applications within 28 days of receipt and appeals against decisions can also be made after a decision letter is received.
The ‘Find out if you can get an exemption from Making Tax Digital for Income Tax’ guidance does need to be considered, particularly the line ‘You should consider if you are digitally excluded before you apply’. For example:
- HMRC will not consider granting an exemption if digital access can be obtained via a ‘suitable’ alternative location – so, it may not be available at the home or business, however, HMRC may consider that a nearby location is a suitable alternative; and
- If applying for an exemption on the grounds that beliefs are incompatible with using digital communications or recordkeeping, this must also apply in personal situations – so, perhaps, an exemption from digital tax reporting and recording might not be considered if the taxpayer is able to do online banking and shopping (personal)
The simple message that HMRC convey is that an exclusion application does not mean it will be granted. Therefore, until the decision letter is received from HMRC (or appealed), taxpayers should continue to prepare for MTD ITSA.
ICB summarises the above links and recommends members make applications for exemptions as soon as possible.
