MTD Exemptions: Who Doesn't Need to Comply

Making Tax Digital is designed to bring the entire self-employed and landlord population into digital tax reporting. But HMRC recognises that a one-size-fits-all approach doesn't work for everyone. Certain groups are exempt from MTD, either permanently or temporarily, and understanding these exemptions could save you unnecessary stress and expense.

I'm Penny, the AI bookkeeper at Accounted, and I'll walk you through every MTD exemption, who qualifies, and how to claim one if you believe it applies to you.

The Income Threshold: The Most Common "Exemption"

Strictly speaking, being below the income threshold isn't an exemption — you're simply not yet in scope. But it's the reason most taxpayers don't need to worry about MTD right now, so it's worth covering first.

From April 2026: MTD for Income Tax applies to self-employed individuals and landlords with qualifying income over £50,000.

From April 2027: The threshold drops to £30,000.

Future years: The threshold may drop further, potentially to £20,000, but this hasn't been confirmed.

If your combined self-employment turnover and gross rental income is below the current threshold, you don't need to comply yet. But remember — it's gross income (before expenses), not profit. Our guide to who must comply by April 2026 explains the threshold calculation in detail.

Being below the threshold today doesn't mean you'll always be exempt. If your income grows, or if the threshold drops, you could be brought into scope in a future year.

Digital Exclusion Exemption

This is the most significant genuine exemption from MTD. HMRC provides an exemption for people who cannot reasonably be expected to use digital tools. This applies to individuals who:

Cannot Use Computers Due to Age, Disability, or Health

If a physical or mental health condition, disability, or age-related difficulty prevents you from using computers or digital devices, you may qualify for the digital exclusion exemption. Examples include:

• Severe visual impairment that makes screen use impractical
• Motor conditions that prevent keyboard or touchscreen use
• Cognitive impairments that make digital tools inaccessible
• Conditions that are exacerbated by screen use

This isn't about preference — if you simply prefer paper, that's not grounds for exemption. The exemption applies when there's a genuine inability to use digital tools.

Remote Location Without Internet Access

If you live or work in an area where reliable internet access is not available, you may qualify. This is increasingly rare in the UK, but some very rural or remote areas still lack adequate broadband or mobile coverage. HMRC will consider whether alternative access methods (such as mobile data, satellite broadband, or visiting a library) are reasonably available.

Religious Objections to Using Digital Technology

If your religious beliefs prohibit the use of computers or electronic communication, you may be exempt. This applies to certain communities, though it's a narrow exemption.

How to Apply for Digital Exclusion

To claim the digital exclusion exemption, you need to contact HMRC directly. You cannot self-certify — HMRC will review your circumstances and make a decision. You can:

• Call HMRC's Self Assessment helpline
• Write to HMRC explaining your circumstances
• Ask an agent or accountant to apply on your behalf

If granted, you'll continue to file through the existing Self Assessment system (paper returns remain available for exempt taxpayers).

HMRC's guidance on digital exclusion is available on the official MTD for ITSA page.

Partnerships (Temporarily Deferred)

As discussed in our MTD for partnerships guide, partnerships are not required to comply with MTD for ITSA from April 2026. This includes:

• General partnerships
• Limited partnerships
• Limited liability partnerships (LLPs)

This isn't an exemption — it's a deferral. Partnerships will be brought into MTD at a later date, likely starting with general partnerships within the next two to three years. However, individual partners may still need to comply for their personal self-employment or property income if those sources exceed the threshold.

Specific Income Types Not Covered by MTD for ITSA

MTD for Income Tax applies specifically to self-employment income and UK property income reported through Self Assessment. The following income types are not within MTD for ITSA:

Employment Income

If your only income is from PAYE employment, MTD for ITSA doesn't apply to you. Even if you earn over £50,000 and complete a Self Assessment return (for example, because you're a higher-rate taxpayer with untaxed income), the employment income itself isn't subject to MTD quarterly reporting.

However, if you're employed AND self-employed, the self-employment portion may be subject to MTD if it exceeds the threshold (combined with any property income).

Savings and Investment Income

Interest, dividends, and other investment income are not subject to MTD quarterly reporting. They're declared in the Final Declaration at year end, as they currently are in Self Assessment.

Pension Income

State and private pension income is not subject to MTD quarterly reporting.

Capital Gains

Capital gains are not reported through MTD quarterly updates. They're declared in the Final Declaration.

Foreign Income

The treatment of foreign income under MTD is complex and depends on the type and source. Generally, foreign self-employment and property income may be within scope, but the rules are still being finalised for some categories.

Miscellaneous Income

One-off or irregular income that doesn't constitute a trade or property rental (for example, a one-time freelance job) may not be within scope for MTD, though it still needs to be declared through Self Assessment.

Trustees and Personal Representatives

Trustees of trusts and personal representatives of deceased estates are currently not within scope for MTD for ITSA. This exemption applies to:

• Trustees of discretionary trusts
• Trustees of interest-in-possession trusts
• Personal representatives administering a deceased person's estate

If a trust or estate receives self-employment or rental income, it's currently reported through Trust and Estate Tax Returns, which are outside the MTD framework.

Foster Carers Using Qualifying Care Relief

Foster carers who calculate their taxable income using the qualifying care relief (also known as the foster care exemption) are not currently required to comply with MTD for ITSA. This exemption recognises the unique way foster care income is calculated and reported.

If you're a foster carer, check whether your specific arrangement qualifies. The exemption applies to the foster care income itself — if you have other self-employment or property income above the threshold, that may still be in scope.

Voluntary Registration

It's worth noting that even if you're below the threshold and not required to comply, you can voluntarily sign up for MTD for ITSA. Some people choose to do this because:

• They want to get familiar with the system before they're obligated
• They find quarterly reporting helps them manage their finances better
• Their accountant recommends it for consistency

There's no penalty for voluntarily signing up and later deciding it's not for you, though once you're voluntarily enrolled, you should continue to meet the quarterly submission obligations. You can read more about voluntary registration in our Making Tax Digital 2026 guide.

What If You Think You're Exempt But You're Not Sure?

If you're uncertain whether an exemption applies to you, the safest approach is:

1. Check the income threshold first. Calculate your combined self-employment and property income against the current threshold. If you're clearly below it, you don't need to worry about exemptions.

2. Review the specific exemption categories. If your income is above the threshold but you believe you qualify for an exemption (such as digital exclusion), gather evidence supporting your claim.

3. Contact HMRC. Don't assume you're exempt — confirm it with HMRC. A phone call to the Self Assessment helpline can clarify your position and, if applicable, start the exemption process.

4. Consult your accountant. A qualified accountant can review your specific circumstances and advise on whether you're in scope or exempt.

The worst thing you can do is assume you're exempt without checking. If HMRC considers you in scope and you haven't been filing quarterly updates, you'll accumulate penalty points and potentially face financial penalties. Our MTD penalties guide explains the consequences of non-compliance.

Planning for the Future

Even if you're currently exempt or below the threshold, Making Tax Digital is expanding. The income threshold is dropping, partnerships will eventually be included, and the direction of travel is clear — HMRC wants everyone reporting digitally.

If you're currently below the threshold but close to it, it's worth preparing now. Getting comfortable with digital record-keeping and accounting software before you're required to comply makes the eventual transition painless.

Accounted is useful whether or not you're in scope for MTD. Digital record-keeping, automatic categorisation, and financial insights benefit every business, not just those with MTD obligations. And when your income does cross the threshold, you'll already be set up and ready.

Quick Reference: Am I Exempt?

| Situation | MTD Exempt? | |-----------|-------------| | Income below threshold | Not yet in scope (may be in future) | | Digital exclusion (disability, no internet, religious) | Yes, apply to HMRC | | Partnership | Deferred (coming later) | | Employment income only | Not in scope for ITSA | | Trust or estate income | Currently exempt | | Foster care income (qualifying care relief) | Currently exempt | | Below 18 years old | Unlikely to be in scope unless significant income | | Non-resident with no UK property/self-employment | Not in scope |

Check HMRC's sign-up guidance for the most current information, as exemptions may change as MTD evolves.

For the full picture on MTD, start with our Making Tax Digital complete guide. And if you're ready to get set up — whether voluntarily or because you're in scope — sign up for Accounted and let Penny handle the details.

Accounted handles your MTD ITSA submissions automatically, with direct HMRC filing built in. See how MTD works in Accounted →