Making Tax Digital Exemptions

An exemption is for people who would otherwise have to use MTD but for whom it is not reasonably practicable to keep digital records or file through software. That test — “reasonably practicable” — is the heart of the whole system. If it is simply inconvenient or unfamiliar, you will not qualify; the bar is a genuine, practical barrier to using digital tools.

If you already hold an exemption from MTD for VAT on digital-exclusion grounds, HMRC has indicated that this generally carries across to MTD for Income Tax, so you should not need to apply twice for the same reason.

HMRC recognises several grounds where using compatible software may not be reasonably practicable:

• Disability or a health condition that makes using a computer or software impractical;
• Age, where it genuinely prevents you from using digital tools;
• Location — living somewhere without reliable internet access, such as a remote area;
• Religious grounds — being a member of a religious society whose beliefs are incompatible with using electronic communications.

HMRC weighs your individual circumstances, including whether a friend, family member or agent could reasonably file on your behalf.

Separately from applying, some people are automatically exempt and do not need to do anything. This includes those who cannot get a National Insurance number, certain trustees, and personal representatives dealing with a deceased person’s affairs. Being automatically exempt is not the same as being below the income threshold or out of scope — it is a specific carve-out set out in HMRC’s guidance.

You apply directly to HMRC, by phone or in writing, explaining your circumstances and why using MTD software is not reasonably practicable. Be specific: set out the barrier, and what alternatives you have already considered. HMRC assesses the request against its published criteria and confirms its decision in writing. Until an exemption is granted, you must keep meeting your existing filing obligations.

If HMRC grants an exemption, you are removed from the MTD requirement and continue to report under the existing arrangements — for Income Tax, that means a traditional Self Assessment return. HMRC may review an exemption from time to time, because circumstances change, so keep any correspondence confirming your status.

These three are easy to confuse but mean different things. An exemption is a decision by HMRC that you do not have to use MTD on practicality grounds. A deferral is a delay in a group’s start date on a set timeline (for example partnerships, whose date HMRC will confirm). Being out of scopesimply means the rules do not reach you yet — because your qualifying income is below the threshold, or your only income is employment or pensions. Only the first requires an application.

HMRC has published specific rules on how MTD applies to jointly owned property. Some simplifications may apply where joint owners do not have full operational control.

An exemption on grounds of digital exclusion is different from simply not being in scope. You do not need an exemption if your qualifying income is below the threshold for the relevant year, if your only income is from employment or pensions, or if you fall into a group HMRC has not yet brought into MTD (such as general partnerships). Only people who would otherwise have to use MTD but genuinely cannot need to apply for exemption.

When you apply on digital-exclusion grounds, HMRC looks at whether it is reasonably practicable for you to use compatible software — taking account of disability, age, remoteness or lack of reliable internet, and religious objection. It helps to explain what you have already considered (for example, whether someone could file on your behalf). HMRC confirms its decision in writing, and you should keep filing under your existing arrangements until an exemption is granted.