With all of the hullaballoo around the upcoming Budget in November, the express train of Making Tax Digital, set to include individual taxpayers wef 6th April 2026, is fast approaching.
A key part of preparing for the introduction of MTD for income tax (MTD IT) is determining which taxpayers are likely to be in (and out) of its scope. One of the main considerations is whether or not a person’s ‘qualifying income’ exceeds the relevant thresholds. There are, however, several other exemptions that could take taxpayers out of MTD IT which I will look at today.
The £50,000 income exemption
The income exemption is the most common route for a taxpayer to escape the clutches of MTD IT. This exemption will be applied automatically by HMRC, with no need for the taxpayer to apply. HMRC will compare the ‘qualifying income’, which in essence is your total gross income from trading and property combined, as per the most recently filed tax return. So, if your qualifying income is below £50,000 on the 2024/25 tax return, HMRC will treat the taxpayer as exempt from MTD IT for 2026/27.
Also included in this exemption is partnership income, which is not currently within MTD IT and does not count as qualifying income. However, this doesn’t mean anyone who is in a partnership is automatically exempt – if they are also a sole trader or have property income outside the partnership, they could still be within MTD IT for those sources depending on the amount of that income.
Additionally, an automatic exemption exists for qualifying care income, such as income from foster caring, but if a foster carer has trading income, or is a landlord, these individuals could still be drawn into MTD IT dependant on the level of that income.
Digital exclusion exemption
Digital exclusion covers two main groups:
- Any practising member of a religious society or order whose beliefs are “incompatible with using electronic communications or keeping electronic records”. The number of taxpayers in this category is likely to be small, but does include groups such as Ultra-Orthodox Jewish communities (Haredim), some Anabaptist groups (including Mennonites) and Quakers
- Any individual for whom it is not “reasonably practicable” to comply with MTD IT due to age, disability, location or any other reason. Although anyone in this group has to make an application to HMRC for approval, they will have to do so without any help from the tax office, as HMRC have yet to issue any guidance over the practical application of the exemption for this group.
Although the legislation has been quite widely drawn, HMRC have stated that they do not expect large numbers of taxpayers to qualify. From past experience, I strongly suspect that this low level of expectation is because they intend to apply a much narrower interpretation than most accountants believe should be applicable.
Are HMRC likely to take a hard line?
A clue to the probability of HMRC taking a hard line, is that they’ve already stated that they will not automatically apply existing digital exclusion exemptions for MTD for VAT to MTD IT. They have instead said that anyone who currently holds a digital exclusion exemption for MTD for VAT must contact HMRC and apply for a separate exemption for MTD IT.
This is allegedly to allow HMRC to ‘check information about you and your circumstances’ to enable them to decide as to whether or not, you also qualify for exemption from MTD IT. Presumably, most, if not all the information they will demand, they will already have on file. This is very petty and mean-spirited of HMRC, as no reasonable person would expect to have to justify their digital exclusion status a second time for income tax, if they’ve already applied for and been granted exemption status for another tax, namely VAT.
Living abroad
There is no automatic exemption from MTD IT on the grounds of being non-UK resident. If an individual has trading or property income subject to UK income tax, they are potentially within the scope of MTD IT. However, there are some specific exemptions which may apply to non-resident taxpayers such as individuals who do not have a National Insurance Number (NINO) will be exempt from MTD IT. HMRC has also promised the exemption will be applied automatically, with no need for the individual to apply to the tax office.
Rather than being a standalone exemption, this now appears to be part of a wider exemption for those unable to verify their identity for MTD IT purposes. It’s unclear what this will mean in practice, but HMRC in answering a question from the London Theatre Group have stated in writing that non-UK resident foreign entertainers, do have an automatic exemption.
Other exemptions
HMRC has recently announced a number of other exemption groups that do not have to join MTD IT during the lifetime of this Parliament; the main ones being:
- Those completing a tax return as a trustee or personal representative
- Donors of a lasting or enduring power of attorney
- Lloyd’s underwriters
- Ministers of religion
- Recipients of married couples’ allowance or blind person’s allowance
Accountant’s view
As we go to press, I’ve just learnt that we might not be the end of the story yet, as the draft legislation for the change has just been published which will allow HMRC to expand the number of exemptions. Whether or not they will do so is another matter, but if there are any future developments as April 2026 approaches, I will let you know.
