Who's exempt from Making Tax Digital?

It’s common to resist change, especially when it affects how you record and file your income and expenses. But reluctance alone doesn’t qualify as an exemption from Making Tax Digital (MTD) for income tax. Here, we dive into the approved list of exemptions and how to check whether any apply to you and your business.

Key takeaways

• You can be exempt from MTD if HMRC decides you’re “digitally excluded”

• Apply directly to HMRC with clear evidence of why you can’t use digital tools

• If refused, you can appeal within 30 days

What does a Making Tax Digital exemption mean?

A Making Tax Digital exemption means you get to record and report your income and expenses as a sole trader or landlord without using MTD-compatible software. HMRC grants an exemption when it decides you can’t reasonably use digital software – which it defines as digital exclusion.

Digital exclusion can relate to either practical or technological issues, but the key point is that MTD would cause an unreasonable problem for you. If HMRC approves your exemption request, you can continue managing your tax affairs through non-digital methods.

Who might be exempt from MTD?

HMRC reviews each exemption request individually and decides whether using digital tools for self-assessment would be too much to ask.

Exemptions usually relate to capability or specific personal reasons, such as religion. HMRC may also approve a limited exemption if your circumstances create a temporary problem that prevents you from meeting MTD requirements for a period of time.

When HMRC may grant an MTD exemption

HMRC may grant an exemption if:

• You have a disability or health condition that prevents you from using computers, smartphones or accounting software

• Your age affects your ability to use digital tools

• You live in an area with no reliable internet access and you cannot reasonably access the internet somewhere else

• Your religion prevents the use of technology, which you comply with in your personal life, too

• You have specific tax circumstances that qualify for a temporary exemption, such as issues with ongoing claims

• You're already exempt from MTD for VAT returns because you are digitally excluded, and your circumstances haven't changed

What doesn’t qualify as an exemption for MTD?

While additional admin can be a hassle, it doesn’t mean you’re exempt from MTD. Here are a few reasons you might be tempted to raise that likely won’t exempt you: 

• You find the rules inconvenient or time-consuming

• You prefer paper records

• You don’t want to pay for software (remember, there are free and low-cost options available)

• You occasionally struggle with technology

Unfortunately, even if the last point is true for you, if you have access to assistance that would allow you to meet the requirements - such as help from a friend, family member or accountant - then you probably won’t be exempt.

HMRC considers exemption applications case by case. It will not usually grant an exemption just because you prefer paper records, dislike accounting software, have only a few records or think MTD will take more time or cost more

Temporary vs permanent exemptions

HMRC can grant either a temporary or a permanent exemption, depending on your circumstances.

A temporary exemption applies when a short-term issue stops you from meeting MTD requirements. This could be a serious illness, an ongoing tax claim issue or a period without stable internet access.

A permanent exemption applies when your situation won’t change. This might include long-term health conditions, age-related limitations or ongoing restrictions around technology use.

How to apply for an exemption

If you believe you’re exempt from MTD, you can ask HMRC to consider your request. The process is straightforward, but you must give enough detail to show why you believe this to be the case.

Here’s a step-by-step guide:

1. Check that your situation qualifies

Make sure your circumstances fit HMRC’s criteria for digital exclusion – be that health, age, location or another reason that prevents you from moving to MTD.

2. Gather your information

Have key details ready, including:

• Your National Insurance number

• Address

• How you normally submit tax returns

• Why you can’t follow MTD requirements.

If someone applies for the exemption on your behalf, you must authorise them first.

3. Apply by phone or in writing

You can call HMRC or send a letter. If you plan to write, use the title “Making Tax Digital for Income Tax – digitally excluded application”.

Remember to include all the relevant information so that HMRC can assess your case.

4. Wait for HMRC’s decision

HMRC reviews applications individually and may ask for more details. You can expect a decision within 28 days, but you should continue preparing to meet MTD requirements while you wait in case your request isn’t approved.

5. Tell HMRC if your circumstances change

If things change and you’re able to meet MTD requirements, you must let HMRC know. Similarly, if you become digitally excluded after signing up, you should apply for an exemption as soon as your circumstances change.

What happens after HMRC grants an exemption?

If HMRC approves your request, you can continue reporting your income and expenses without using MTD-compatible software. HMRC should confirm this in writing and explain whether your exemption is temporary or permanent.

• If you receive a temporary exemption, HMRC may review your situation later. If your circumstances change, you must tell HMRC

• If you receive a permanent exemption, you can continue using non-digital methods unless your situation changes. HMRC may check in with you to confirm the exemption still stands

Remember to file your tax return on time and keep accurate records to avoid penalties – this remains your responsibility even if you’re not following MTD requirements.

What can I do if my MTD exemption application is rejected?

If HMRC rejects your exemption request, you can challenge the decision.

To appeal, write to HMRC within 30 days of informed of the initial decision. Title your letter “Making Tax Digital for Income Tax – digitally excluded appeal” and send it to the address shown in your decision letter. Include any new information or evidence you want HMRC to consider.

While you wait for the review, continue preparing to meet MTD requirements in case the decision doesn’t change. You can also speak to a financial adviser if you need help presenting your case clearly.

💡 Editor insight: Tax is no longer a once-a-year job, and SMEs are spending £4.8bn on software to stay compliant

MTD exemptions for VAT: what’s different?

MTD for VAT has a similar exemption process, but the rules apply separately from income tax. 

If you’re VAT-registered, you must meet MTD for VAT requirements unless HMRC agrees you’re digitally excluded. The reasons for exemption are broadly the same - age, disability, location or other barriers to using technology - but you need to apply specifically for a VAT exemption.

For full details, HMRC’s guidance explains the VAT exemption process.