HMRC has opened a new service allowing landlords and self-employed taxpayers to apply for exemption from the first phase of Making Tax Digital for income tax (MTD IT). Decisions will take up to 28 days, with HMRC urging applicants to prepare for compliance if an exemption is refused.
Who will be affected?
From April 2026, the self-employed and landlords with more than £50,000 gross income in their 2024/25 self assessment tax return will be legally required to follow MTD rules. A lower threshold will be introduced in 2027, bringing more taxpayers into the programme.
Around 900,000 individuals are expected to fall under MTD from 2026. According to estimates, about a quarter of these — roughly 216,000 people — do not use the services of an accountant or tax adviser, leaving them particularly reliant on HMRC guidance.
How to apply for exemption
Taxpayers who believe they cannot manage their affairs digitally can apply for an exemption. Applications can be made by phone or by writing to HMRC, with letters clearly titled “Making Tax Digital for income tax — digitally excluded application”.
Relatives, friends or authorised tax agents may submit requests on behalf of someone else. HMRC will assess each application individually, with no guarantee of success.
New guidance published by HMRC defines digital exclusion as circumstances where “it’s not reasonable for you to use compatible software to keep digital records or submit them to HMRC”. Automatic exemptions exist for certain groups, such as those without a national insurance number.
HMRC has warned applicants not to assume success and to prepare for MTD: “You should prepare to use Making Tax Digital for income tax while you’re waiting for us to respond, in case your application is not accepted.”
What do the changes mean?
Exemption is unlikely to apply to those who employ an accountant or tax adviser. HMRC has clarified that if an authorised agent uses MTD-compatible software on behalf of a taxpayer, the legal requirements are considered met. While this means accountancy fees may be unavoidable for some, it could reduce costs associated with software and compliance.
However, exemption requests may be vital for digitally excluded groups, such as elderly taxpayers or those without access to technology.
The Low Incomes Tax Reform Group (LITRG) urges people to act quickly if they think they might qualify. Technical officer Sharron West described MTD as “the biggest change to the tax system since self assessment” and warned that preparation is essential.
“Even if they have passed the income threshold and are not automatically exempt, it might still be possible to claim an exemption because they are digitally excluded,” she said.
“Because HMRC will deal with applications on a case-by-case basis, we don’t yet know how generous their interpretation of the rules will be, but we know that HMRC is keen to see as many people as possible manage their taxes online.”
West added that those already exempt from MTD for VAT should check with HMRC to confirm whether their exemption will extend to income tax. “The clock is ticking, and it’s time to get ready,” she warned.
Key dates for applications
Applications for exemption must be made before the new reporting deadlines. The timetable is as follows.
- 6 April 2026 – exemptions open for those in the first group with £50,000 income; apply in advance for consideration before this date.
- 6 April 2027 – applications open from summer 2026 for the second group, those with qualifying income above £30,000.
- 6 April 2028 – applications open from summer 2027 for the third group, with income over £20,000.
The bigger picture
The introduction of MTD IT marks a significant extension of digital record-keeping requirements. HMRC aims to move the majority of taxpayers onto online systems, with exemptions reserved only for those who genuinely cannot comply.
While the system is designed to improve accuracy and reduce fraud, campaigners are concerned about its impact on lower-income taxpayers, many of whom may not have the digital skills or resources required.
Those affected are being urged to assess their situation, prepare for the change and apply for exemption promptly if they believe they are eligible.
Talk to us about your finances.