MTD Exemptions: Who Does NOT Have to Use Making Tax Digital for Income Tax

Exemption vs deferral: an important distinction

Before we go through who is exempt from MTD, it is worth clarifying something that confuses a lot of people.

Being deferred is not the same as being exempt.

If your qualifying income is between £30,000 and £50,000, you do not need to join MTD in April 2026 — but you are expected to join in April 2027. That is a deferral, not an exemption.

A genuine exemption means you never have to use MTD at all, regardless of your income.

This guide covers both.

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Who is deferred (not yet required)

The rollout happens in phases:

| Phase | From | Qualifying income | |-------|------|-------------------| | Phase 1 | April 2026 | Over £50,000 | | Phase 2 | April 2027 | Over £30,000 | | Phase 3 | April 2028 | Over £20,000 |

If your qualifying income (self-employment + UK property combined) is below the current phase threshold, you are simply not required yet. You do not need to take any action until your phase begins — though getting familiar with the process before your deadline is sensible.

Qualifying income is assessed based on the previous tax year. If your 2024/25 income was under £50,000, you do not enter Phase 1 in April 2026, even if your 2025/26 income ends up above £50,000.

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Genuine MTD exemptions

1. Income permanently below any MTD threshold

HMRC has not yet confirmed the treatment of income below £20,000 beyond April 2028. The current legislation only mandates MTD for income above £20,000. People with qualifying income consistently below this level are not in scope.

However, the government has indicated it may extend MTD further in the future. For now, if your qualifying income is below £20,000 and stays there, you are not required to use MTD.

2. Digital exclusion exemption

If you are unable to use digital tools for any of the following reasons, you can apply to HMRC for a digital exclusion exemption:

• A disability that prevents you from using digital tools or a computer
• Age-related difficulties using technology
• Living in an area with no reliable internet access
• Any other reason HMRC considers makes digital record keeping impractical

How to apply: Contact HMRC's MTD helpline and request an exemption application. You will need to explain your circumstances. If granted, you will continue to file a traditional Self Assessment return instead.

HMRC has said they will approach digital exclusion applications sympathetically, but you cannot simply declare yourself digitally excluded. There is a formal process.

3. Insolvency-related situations

Certain insolvency situations may mean MTD does not apply or is handled differently. If you are in administration, bankruptcy, or certain forms of insolvency proceedings, HMRC will advise on your specific position.

4. Non-resident individuals

MTD for Income Tax currently applies to UK residents. Non-resident individuals with UK property income have different tax arrangements and are not in scope for MTD ITSA in the same way. Seek specific advice if you are non-resident with UK income.

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Who is simply not affected

PAYE employees with no other income

If your only income is from employment (taxed at source through PAYE), you are not affected by MTD for Income Tax at all. Your employer handles PAYE and you do not need to file Self Assessment unless you have other income sources.

Employed people with a small side income below the threshold

If you are primarily PAYE-employed but also have some freelance or rental income, MTD only applies if your qualifying income (the self-employment or property income, not your PAYE income) exceeds the relevant threshold.

Example: You earn £60,000 from employment and £8,000 from a rental property. Your qualifying income for MTD purposes is £8,000 — well below any current threshold. You are not in scope for any phase of MTD unless your non-PAYE income grows significantly.

Companies and partnerships

MTD for Income Tax Self Assessment is for individuals who file Self Assessment. Limited companies file Corporation Tax returns, not Self Assessment, and are not in scope. Partnerships have their own MTD timeline which has not yet been confirmed — general partnerships are expected to be included in a future phase.

Trustees and personal representatives

Trusts and estates are not currently in scope for MTD for Income Tax. They continue to file Self Assessment tax returns in the traditional way.

Individuals with only savings, dividends, or pension income

MTD for Income Tax applies to qualifying income from self-employment and UK property. If your only income sources are savings interest, dividends, or pension income (no self-employment or rental income), you are not in scope — even if these amounts are very large.

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How to check your qualifying income

Your qualifying income for MTD is:

Gross self-employment income (total receipts from your self-employment before any expenses) plus Gross UK property income (total rent received before any expenses)

Not included: PAYE employment income, pension income, savings interest, dividends, capital gains, overseas income.

Look at your 2024/25 Self Assessment return:

• Self Assessment SA103 (self-employment) — look at your total turnover/receipts
• Self Assessment SA105 (property) — look at your total rents received

Add these two figures. If the combined total exceeds the relevant threshold, you are in scope.

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Jointly owned property: how it affects the threshold

If you own rental property jointly with a spouse or partner, each person's qualifying income is based on their share of the rental income, not the total.

Example: A property earns £70,000 in rent. You and your spouse own it 50/50. Each of you has £35,000 of qualifying property income. If neither has self-employment income, neither is in Phase 1 — but both will be in Phase 2 from April 2027.

If you own the property in unequal shares (declared to HMRC via Form 17), each person's qualifying income reflects their actual ownership percentage.

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What to do if you think you are exempt

If you believe you qualify for a genuine exemption (not just a deferral), contact HMRC directly to confirm your position before your phase start date. Do not simply stop filing Self Assessment without confirmation.

If you are in the digital exclusion category, start the application process early. HMRC will need time to process it before your deadline.

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The MTD Ready kit

Not sure whether you are in scope, deferred, or exempt? The MTD Ready kit helps you quickly assess your situation and gives you a personalised action plan. One-time £29.

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Frequently Asked Questions

If I am below the threshold this year, do I need to do anything?

No. If your qualifying income is below the current phase threshold, you do not need to register or take any action for that phase. Keep an eye on the thresholds — if your income increases, you may become in scope in a future year.

Can I voluntarily sign up for MTD before my phase starts?

Yes. HMRC accepts voluntary sign-ups for MTD for Income Tax. Some people choose to sign up early to get familiar with the system before it becomes mandatory. If you sign up voluntarily, you will be treated as if you are in the mandatory phase.

What happens if my income fluctuates above and below the threshold year to year?

MTD scope is assessed based on the previous tax year's qualifying income. If you were above the threshold last year, you are in scope this year. If you subsequently have a year below the threshold, you may be able to exit MTD — but there is a formal process and HMRC must agree. You cannot simply stop filing quarterly updates because your income dropped.

I applied for a digital exclusion exemption and was refused. What can I do?

You can ask HMRC to review the decision. If you disagree with the outcome after review, you may have the right to appeal to the First-tier Tribunal (Tax). HMRC's guidance on the appeals process is on GOV.UK.

My circumstances are complex — mixed PAYE and freelance income, plus some rental income. How do I know if I am in scope?

Total your gross self-employment income and gross UK property income from your most recent Self Assessment return. Do not include PAYE income. If that combined figure exceeds £50,000, you are in Phase 1. If you are unsure or have complex affairs, an accountant or tax adviser can confirm your position quickly.

Are there any planned changes to who is exempt?

The government has indicated it intends to extend MTD to all self-assessment taxpayers eventually, but no further phases beyond 2028 (covering income above £20,000) have been legislated yet. The position for people with income below £20,000, overseas income, and other edge cases will be clarified in future legislation. Check GOV.UK for the latest.