What Are the Making Tax Digital Exemptions in 2026?
As April 2026 approaches, many UK landlords and sole traders are beginning to question whether Making Tax Digital (MTD) for Income Tax Self Assessment will apply to them, or whether they may qualify for an exemption. With the first mandatory phase now firmly scheduled, understanding the exemption rules is no longer optional—it is a crucial part of tax planning for the years ahead.
As of 30 December 2025, HMRC has confirmed the framework for MTD exemptions in 2026 and beyond. While the system is designed to bring most self-employed individuals and landlords into digital reporting, HMRC has also recognised that MTD will not be suitable for everyone. This guide explains who must comply, who may be exempt, and how those exemptions work in practice.
The MTD Rollout: Who Must Comply & When?
Making Tax Digital for Income Tax Self Assessment applies to sole traders and landlords with qualifying income from self-employment or property. From 6 April 2026, individuals whose total qualifying income for the 2024/25 tax year was £50,000 or more will be required to keep digital records and submit quarterly updates to HMRC using MTD-compatible software.
The scope of MTD will widen in the years that follow. From April 2027, the threshold will reduce to £30,000 based on 2025/26 income, and from April 2028 it will fall again to £20,000. Qualifying income refers to turnover before expenses from business and rental activities, excluding employment income, pensions, and dividends. This staged rollout is intended to give smaller businesses more time to prepare, but it also means that many who are currently unaffected will be brought into the system in the near future.
Automatic Exemptions Under Making Tax Digital
Certain individuals are automatically excluded from MTD for Income Tax without the need to apply. The most common automatic exemption applies where qualifying income falls below the relevant threshold for the tax year in question. If your income does not meet the entry criteria, MTD simply does not apply to you for that year.
Other automatic exemptions cover more specific circumstances. Trustees filing returns for trusts, personal representatives dealing with estates, and individuals without a National Insurance number by the relevant deadline are not required to comply. Non-resident companies are also excluded, as are Lloyd’s underwriters in respect of their underwriting business. Foster carers with income solely from fostering arrangements are similarly outside the scope of MTD.
These exemptions exist to reflect situations where MTD reporting would be inappropriate or impractical by design. However, they apply on a year-by-year basis, meaning eligibility should be reviewed regularly to ensure continued compliance.
Digital Exclusion: When MTD Is Not Reasonably Practicable
The most widely discussed exemption is digital exclusion. This applies where it is not reasonably practicable for an individual to use digital tools to meet MTD requirements. HMRC recognises that age, disability, location, or religious beliefs may make digital record-keeping genuinely unworkable in certain cases.
However, HMRC applies a strict interpretation of digital exclusion. Lack of confidence with technology, the perceived cost of software, or a preference for paper records will not usually qualify. Similarly, having a small number of transactions or limited time does not, by itself, justify an exemption. HMRC expects most taxpayers to adapt unless there is a clear and demonstrable barrier.
It is also important to note that using an accountant does not automatically make you digitally excluded. If your agent submits information digitally on your behalf using compliant software, you are generally considered to be meeting the MTD requirements, even if you personally do not interact with the software.
How to Apply for an MTD Exemption
Applications for exemption must be made directly to HMRC and should be submitted as early as possible. For those due to join MTD in April 2026, applying by January 2026 is strongly recommended to avoid uncertainty. Applications can be made by telephone or in writing to HMRC’s Self Assessment team.
When applying, individuals will need to provide their National Insurance number, contact details, current filing method, and a clear explanation of why MTD is not reasonably practicable for them. Supporting evidence may be requested, particularly where the application is based on health conditions or limited digital access.
HMRC aims to respond within 28 days, but applicants are expected to prepare for MTD while awaiting a decision. If an application is rejected, there is a right to appeal within 30 days, provided additional evidence can be supplied.
What Happens If You Are Exempt or Refused?
If an exemption is granted, the individual may continue filing traditional Self Assessment returns and keeping non-digital records. However, exemptions are not permanent. HMRC must be informed if circumstances change, and eligibility may be reviewed periodically.
If an exemption is refused, the individual must comply with MTD requirements from the relevant start date. This includes maintaining digital records, submitting quarterly updates, and completing a Final Declaration. HMRC has confirmed a light-touch penalty approach during the initial transition, but ongoing non-compliance may still lead to penalties once the system is fully established.
Preparing for MTD, Even If You Expect an Exemption
Even where an exemption is likely, it is sensible to prepare for MTD in case circumstances change. Familiarising yourself with digital record-keeping, understanding software options, and reviewing your income position can prevent last-minute issues. HMRC’s long-term intention is to make digital reporting the standard, not the exception.
Voluntary participation is also possible before your mandatory start date. This allows taxpayers to test systems, adjust processes, and identify issues without the pressure of full compliance. For many landlords and sole traders, early preparation reduces stress and improves accuracy.
How Sterling & Wells Can Support You
Sterling & Wells supports landlords, sole traders, and small businesses across the UK with Making Tax Digital compliance. From assessing exemption eligibility to managing digital submissions and selecting appropriate software, the firm provides practical, tailored support at every stage of the transition.
Whether you believe you qualify for an exemption or need help preparing for mandatory MTD reporting, Sterling & Wells can guide you through the process and ensure your tax affairs remain compliant as the rules evolve. With April 2026 approaching quickly, early advice can make all the difference.
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