We highlight HMRC’s guidance on Making Tax Digital for Income Tax (MTD IT) exemptions. Exemption means there are no MTD filing and reporting obligations, however, there is still a Self-Assessment filing and reporting obligation.
The section ‘Who is exempt from Making Tax Digital for Income Tax’ details there are two types of exemption and ICB recommends members and clients are familiar with this:
The Permanent Exemption
Simply, an exemption that is permanent is one that means there will be no obligation to use MTD ITSA unless there are a change in circumstances. A permanent exemption may be:
1. Automatic – i.e. there is no need to apply for this exemption as it is based on data that HMRC already has about the taxpayer. It will not be possible to sign-up for MTD ITSA if there is an automatic exemption; or
2. Not automatic – i.e. there is a need to apply for this and, possibly, provide supporting evidence
Currently, taxpayers and agents can apply for a permanent non-automatic MTD ITSA exemption on the grounds of being digitally-excluded.
The Temporary Exemption
A temporary exemption is one that will apply for a limited period. This may be up to or beyond April 2027. Again, temporary exemptions fall into two categories:
1. Automatic - i.e. one based on information already held by HMRC based on the 2024/25 tax return. Therefore, it may be that this is outdated information, in which case it will need to be challenged; and
2. Not automatic – i.e. there is a need to apply for an exemption
As at the time of writing, taxpayers and agents cannot apply for a temporary exemption or challenge the automatic exemption based on data held by HMRC’s systems.
In this regard, the above guidance says:
‘You cannot apply for these exemptions yet. We’ll publish guidance soon on how to apply when the process opens’.
For Bookkeepers
Perhaps, it is simple that the MTD IT exemptions application process is only available for clients that fall into the permanent and not automatic group.
Members should be aware, though, that permanent and automatic exemptions are based on data that HMRC holds on its systems. Circumstances may change meaning a client may cease to be exempt in the future, or vice versa.
