MTD Exemptions: Who Doesn't Need to Join & How to Apply for Digital Exclusion
- Adil Akhtar
- Jul 1
- 13 min read
The Audio Summary of the Most Important Points:
Understanding MTD and Who’s Automatically Exempt
What Is Making Tax Digital, and Why Do Exemptions Matter?
Now, if you’re running a small business or renting out a property in the UK, you’ve likely heard of Making Tax Digital (MTD). It’s HMRC’s push to modernise tax reporting, requiring businesses and self-employed individuals to keep digital records and submit tax returns using MTD-compatible software. For VAT, this applies to all VAT-registered businesses since April 2022, regardless of turnover.
For Income Tax Self-Assessment (ITSA), it’s being phased in: from April 2026 for those with qualifying income over £50,000, April 2027 for over £30,000, and April 2028 for over £20,000. But here’s the kicker—not everyone has to jump on the digital bandwagon. Exemptions exist, and they can save you from costly software upgrades or penalties if you genuinely can’t comply. Understanding these exemptions is crucial to avoid unnecessary stress or expense.
Who’s Automatically Exempt from MTD for VAT?
Let’s start with the good news: some businesses and individuals don’t need to lift a finger to be exempt from MTD for VAT. These automatic exemptions are a lifeline for specific groups. According to HMRC’s latest guidance (updated October 2024), you’re automatically exempt if:
Your business is subject to an insolvency procedure, such as bankruptcy or liquidation.
You’ve cancelled your VAT registration but still need to file a final VAT return.
You’re already exempt from online VAT filing, typically due to prior exemptions carried over from pre-MTD rules.
Now, consider this: if you fall into one of these categories, you don’t need to apply for an exemption—HMRC automatically recognises your status. For example, if your business is insolvent, you’re off the hook for MTD-compliant software. Similarly, if you’ve deregistered for VAT, your final return can be submitted the old-fashioned way, as outlined in VAT Notice 700/22, paragraph 3.4.
Who’s Automatically Exempt from MTD for Income Tax?
For MTD for Income Tax (ITSA), the exemptions are slightly different but equally important. As of April 2025, HMRC confirms you’re automatically exempt if you:
Are a trustee of a charitable trust or non-registered pension scheme.
Don’t have a National Insurance number by 31 January before the tax year starts.
Are a non-UK resident foreign entertainer or sportsperson with no other qualifying UK income.
Claim qualifying care relief (e.g., foster carers) for that income source.
Are a Lloyd’s underwriter, minister of religion, or receive specific investment distributions.
So, if you’re a foster carer in Manchester earning below the threshold for MTD ITSA, you’re automatically exempt for that income stream. However, if you also run a side hustle as a sole trader with £60,000 in turnover, you’ll need to comply with MTD for that business from April 2026. It’s worth noting that these exemptions are specific to the income source, so mixed income scenarios can get tricky—more on that later.
Why Turnover Thresholds Matter for ITSA Exemptions?
Now, here’s where things get practical for small business owners and landlords. For MTD ITSA, turnover thresholds determine whether you’re mandated to join. As of June 2025, the rules are:
2026/27: If your combined self-employment and property income is £50,000 or less, you’re exempt.
2027/28: The threshold drops to £30,000.
2028/29: It lowers further to £20,000.
Here’s a quick table to clarify the ITSA thresholds:
Tax Year | Turnover Threshold | Mandated to Join MTD ITSA? |
2026/27 | ≤ £50,000 | No (exempt) |
2027/28 | ≤ £30,000 | No (exempt) |
2028/29 | ≤ £20,000 | No (exempt) |
These thresholds apply to your qualifying income, which includes self-employment turnover (boxes 15/9 on SA103F/SA103S), property income (boxes 20/22/23 on SA105), and furnished holiday lets (box 5 on SA105 for 2024/25). If your income is below these thresholds, you’re automatically exempt until the threshold lowers to include you. For instance, Elowen Tremayne, a Cornwall-based landlord with £25,000 in rental income, is exempt in 2026 but must join MTD by April 2028 unless she qualifies for another exemption.
Why Automatic Exemptions Aren’t Always Enough?
Be careful! Automatic exemptions sound great, but they cover a narrow group. Many taxpayers, especially older individuals or those in rural areas, don’t fit these categories but still struggle with digital tools. That’s where digital exclusion exemptions come in, which we’ll dive into next. The key is knowing whether you qualify automatically or need to apply, as HMRC won’t proactively check your circumstances unless you raise the issue.
Case Study: The Insolvent Bakery in Birmingham
Let’s paint a picture with a real-world example. In 2024, Gwilym Pritchard ran a small bakery in Birmingham with a taxable turnover of £90,000. His business hit hard times, and by March 2025, it entered liquidation. Gwilym was automatically exempt from MTD for VAT because of the insolvency procedure. He didn’t need to apply, and his final VAT return was submitted manually, saving him the cost of MTD-compliant software during a financially dire period. This case highlights how automatic exemptions can provide relief when businesses are already under pressure.
Navigating Digital Exclusion Exemptions for MTD
What Does Digital Exclusion Mean for MTD?
Now, let’s get to the heart of why many of you might be reading this: digital exclusion. Not everyone’s comfortable with cloud-based software or even has reliable internet to comply with Making Tax Digital (MTD). HMRC gets that, which is why they offer exemptions for those who can’t reasonably use digital tools. As of June 2025, digital exclusion exemptions apply to both MTD for VAT and Income Tax Self-Assessment (ITSA), but they’re not handed out lightly. You need to prove that digital compliance is genuinely impractical, and that’s where things can get a bit sticky. Let’s break it down so you know exactly what’s involved.
Who Qualifies for a Digital Exclusion Exemption?
So, the question is: who can actually get a digital exclusion exemption? HMRC’s guidance (VAT Notice 700/22, updated October 2024) outlines three main reasons you might qualify:
Age, disability, or health issues: If you’re elderly, have a disability, or have a condition that makes using digital tools challenging (e.g., arthritis affecting typing or cognitive issues with learning new software).
Location: If you live in a remote area with no reliable internet or mobile signal, like parts of rural Scotland or Wales.
Other reasons: This includes religious objections to technology (e.g., certain faith communities) or other personal circumstances that make digital compliance unreasonable.
Here’s the catch: HMRC assesses each case individually. For example, being over 70 doesn’t automatically exempt you, but if you’re 75 with limited computer skills and no internet at home, you’ve got a strong case. Similarly, if you’re a sole trader in the Outer Hebrides with no broadband, HMRC is likely to grant an exemption. The key is demonstrating that compliance would be an unreasonable burden, as per HMRC’s MTD guidance on GOV.UK.
How Do You Apply for a Digital Exclusion Exemption?
Now, applying for an exemption isn’t as daunting as it sounds, but it does require some effort. Unlike automatic exemptions, you need to proactively contact HMRC to make your case. Here’s a step-by-step guide to help you through the process:
Step-by-Step Guide: Applying for MTD Digital Exclusion
Gather Evidence: Collect proof of your circumstances, like a doctor’s note for a disability, a letter from your internet provider confirming no service in your area, or a written statement explaining your situation (e.g., religious objections).
Contact HMRC: Call the MTD helpline at 0300 200 3700 (open 8am-6pm, Monday to Friday) or write to HMRC’s VAT Registration Service. The address is: HMRC, VAT Registration Service, Imperial House, 77 Victoria Street, Grimsby, DN31 1DB.
Submit Your Request: Provide your VAT registration number (for MTD VAT) or Unique Taxpayer Reference (UTR) (for MTD ITSA), along with a detailed explanation of why you can’t comply. A template letter is below to make this easier.
Follow Up: HMRC typically responds within 28 days. If approved, you’ll receive written confirmation of your exemption. If rejected, you can appeal (more on that later).
Keep Records: Store your exemption confirmation with your tax records, as HMRC may ask for proof during audits.
Sample Exemption Request Letter
Here’s a template you can adapt:
Dear HMRC,
Subject: Application for MTD Digital Exclusion Exemption – Your Name, VAT
No./UTR
I am writing to request an exemption from Making Tax Digital requirements for [VAT/ITSA] due to [specific reason, e.g., lack of reliable internet in my area]. I live in [location] and face the following challenges: [describe circumstances, e.g., no broadband access, confirmed by my provider]. Attached, please find [list evidence, e.g., letter from ISP, medical note]. I believe these circumstances make digital compliance unreasonable for my business/self-assessment.
Please contact me at [phone/email] if you need further details. My [VAT No./UTR] is [number].
Yours sincerely,[Your Full Name]
This template is concise yet covers all necessary points, making it easier for HMRC to process your request.
What Happens If HMRC Rejects Your Exemption Request?
Be careful! HMRC doesn’t always say yes. If your application is rejected, don’t panic—you can appeal. You’ll need to write to HMRC within 30 days of the rejection, explaining why you believe their decision is unfair. Include any additional evidence, like a more detailed medical report or a map showing your area’s poor connectivity. In 2024, HMRC handled over 12,000 exemption requests for MTD for VAT, approving 68% but rejecting others due to insufficient evidence (HMRC Annual Report, 2024). A strong appeal with clear documentation can turn things around. For example, Morwenna Llewellyn, a 78-year-old landlord in Powys, was initially rejected in 2023 because she didn’t provide a medical note. After submitting a GP letter confirming her visual impairment, her appeal was approved in early 2024.
Practical Analysis: Edge Cases and Mixed Scenarios
Now, consider this: what if you’re partially digitally literate or have fluctuating income? These edge cases can complicate exemption eligibility. Let’s explore a couple of scenarios:
Partial Digital Literacy: Suppose you’re a 65-year-old sole trader like Tamsin Penrose, who can use email but struggles with MTD-compliant software like QuickBooks. HMRC may suggest you get help from an accountant or family member. If that’s not feasible (e.g., no affordable support), you can argue that the cost and complexity are unreasonable, especially if your turnover is low (e.g., £25,000).
Fluctuating Income: If you’re a freelancer like Jago Trelawny with income that swings between £20,000 and £60,000 annually, you might be exempt one year but not the next. HMRC expects you to monitor your turnover and join MTD when you cross the threshold. To avoid surprises, track your income monthly and budget for software costs if you’re nearing the limit.
Here’s a table summarising key considerations for digital exclusion:
Reason for Exemption | Evidence Needed | Likelihood of Approval | Notes |
Age/Disability | Medical note, GP letter | High (if well-documented) | Must show digital tools are impractical |
Remote Location | ISP letter, postcode data | High (if no connectivity) | Check Ofcom’s broadband map for proof |
Religious Objections | Statement from community | Moderate (case-by-case) | Must be a recognised belief |
Other (e.g., financial hardship) | Financial records | Low (needs strong justification) | Combine with other reasons for better chances |
Case Study: The Rural Farmer in Cumbria
Let’s look at a real-world example. In 2024, Branok Curnow, a 72-year-old farmer in Cumbria, applied for a digital exclusion exemption for MTD for VAT. His farm, located in a remote valley, had no broadband and only patchy 3G. Branok submitted a letter from his provider confirming the lack of service, along with a statement explaining his limited computer skills. HMRC approved his exemption within three weeks, allowing him to continue filing paper VAT returns. This case shows how combining location-based evidence with personal circumstances can strengthen your application.
Summary of Key Points and Practical Takeaways for MTD Exemptions
Why Knowing Your MTD Exemption Status Is a Game-Changer
Now, if you’ve been following along, you’ve got a solid grasp of Making Tax Digital (MTD) exemptions and how they can save you time, money, and stress. Whether you’re a small business owner in Leeds or a landlord in Devon, understanding whether you’re exempt—and how to secure that exemption—can make tax compliance a lot less daunting. This final part sums up the most critical points in bite-sized takeaways, ensuring you’ve got everything you need to make informed decisions as of June 2025. These points are designed to be practical and actionable, so you can confidently navigate HMRC’s rules.
Top 10 Must-Know Points About MTD Exemptions
MTD applies to VAT and Income Tax, but not everyone’s required to join. MTD mandates digital record-keeping and submissions for VAT-registered businesses (since April 2022) and self-employed individuals or landlords with qualifying income above £50,000 (from April 2026), dropping to £30,000 in 2027 and £20,000 in 2028.
Automatic exemptions for VAT are narrow but straightforward. You’re exempt from MTD for VAT if your business is insolvent, you’ve deregistered for VAT, or you were previously exempt from online VAT filing, as per HMRC’s VAT Notice 700/22 (updated October 2024).
Income Tax exemptions depend on your role or income source. Trustees, non-UK resident entertainers, foster carers, Lloyd’s underwriters, and those without a National Insurance number are automatically exempt from MTD for Income Tax Self-Assessment (ITSA), per HMRC’s 2024 guidance.
Turnover thresholds delay MTD ITSA for low earners. If your combined self-employment and property income is below £50,000, you’re exempt from MTD ITSA until April 2027 (or April 2028 for £20,000 or less), giving you time to prepare.
Digital exclusion exemptions are available but require proof. You can apply for an exemption if age, disability, remote location, or religious beliefs make digital compliance unreasonable, as outlined in HMRC’s MTD framework.
Applying for digital exclusion involves contacting HMRC directly. Call the MTD helpline (0300 200 3700) or write to HMRC’s VAT Registration Service with evidence like medical notes or proof of no internet access to support your case.
A strong application needs solid evidence. Documentation, such as a GP letter for health issues or an ISP statement for poor connectivity, significantly boosts your chances of approval, with HMRC approving 68% of VAT exemption requests in 2024.
Rejections can be appealed within 30 days. If HMRC denies your exemption, you can appeal with additional evidence, like Morwenna Llewellyn did in 2024 to secure her exemption due to visual impairment.
Edge cases like partial digital literacy require extra justification. If you’re somewhat tech-savvy but can’t afford or manage MTD software, you’ll need to prove that compliance is still an unreasonable burden, especially for low turnovers.
Real-world examples show exemptions work for diverse scenarios .From insolvent businesses like Gwilym Pritchard’s bakery to rural farmers like Branok Curnow, exemptions provide relief when digital compliance isn’t feasible.
FAQs
Q1: What is the deadline for applying for an MTD digital exclusion exemption?
A1: There is no strict deadline for applying, but it should be done before the date you’re required to start complying with MTD, such as the start of your VAT period or the tax year for ITSA.
Q2: Can a business with multiple income streams qualify for partial MTD exemptions?
A2: Yes, exemptions can apply to specific income streams, such as qualifying care relief, while other income sources may still require MTD compliance.
Q3: Does having an accountant negate the need for a digital exclusion exemption?A3: Not necessarily; if digital compliance is still unreasonable due to personal circumstances like disability or location, an exemption can be applied for even with an accountant’s help.
Q4: Can a temporary health issue qualify someone for a digital exclusion exemption?
A4: Temporary health issues may qualify if they significantly impair the ability to use digital tools, but HMRC may require evidence of the condition’s impact.
Q5: What happens if someone misses the MTD compliance deadline while awaiting an exemption decision?
A5: HMRC may waive penalties if the exemption application was submitted in good faith before the deadline and is still under review.
Q6: Can a digital exclusion exemption be applied for retroactively?
A6: In rare cases, HMRC may consider retroactive exemptions if exceptional circumstances prevented timely application, but this requires strong justification.
Q7: Are there any costs associated with applying for an MTD exemption?
A7: There are no direct fees for applying, but costs may arise from gathering evidence, such as obtaining medical or ISP letters.
Q8: Can a business with low digital literacy but access to internet still qualify for an exemption?
A8: Yes, if the business owner can demonstrate that learning and using MTD software is unreasonably difficult due to age or other personal circumstances.
Q9: How does HMRC verify claims of no internet access for digital exclusion?
A9: HMRC may cross-check claims using postcode data or request confirmation from internet service providers to verify lack of connectivity.
Q10: Can a digital exclusion exemption be renewed automatically?
A10: Exemptions are not automatically renewed; HMRC may reassess circumstances periodically, requiring updated evidence for continued exemption.
Q11: What types of religious objections qualify for MTD exemptions?
A11: Objections from recognised religious communities that prohibit or restrict technology use, such as certain Amish or similar groups, may qualify.
Q12: Can a business owner delegate MTD compliance to avoid needing an exemption?
A12: Delegation to an accountant or agent is possible, but if digital compliance remains impractical for the business owner, an exemption can still be sought.
Q13: How long does HMRC typically take to process an MTD exemption appeal?
A13: Appeals are usually processed within 30 days, though complex cases with additional evidence may take longer.
Q14: Can a digital exclusion exemption apply to both VAT and ITSA simultaneously?
A14: Yes, if the same circumstances (e.g., no internet access) apply to both tax types, a single application can cover both, but separate evidence may be needed.
Q15: What penalties apply if someone fails to comply with MTD without an exemption?
A15: Penalties for non-compliance can include fines starting at £100 per late submission, with potential increases for repeated failures.
Q16: Can a business owner reapply for an exemption after a failed appeal?
A16: Yes, a new application can be submitted with additional or revised evidence to strengthen the case.
Q17: Does having a low turnover automatically exempt someone from MTD for VAT?
A17: No, all VAT-registered businesses must comply with MTD for VAT regardless of turnover, unless they qualify for an automatic or digital exclusion exemption.
Q18: Can a digital exclusion exemption be granted for financial hardship alone?
A18: Financial hardship alone is unlikely to qualify, but it can support an application when combined with other factors like age or disability.
Q19: How does HMRC handle exemption applications for businesses in liquidation?
A19: Businesses in liquidation are automatically exempt from MTD for VAT, so no application is needed, and HMRC will confirm this during the insolvency process.
Q20: Can someone with a digital exclusion exemption still use paper records for other tax purposes?
A20: Yes, an exemption allows continued use of paper records for the relevant tax type, but digital records may still be required for non-exempt taxes.
About The Author:
Adil Akhtar, ACMA, CGMA, CEO and Chief Accountant of Pro Tax Accountant, is an esteemed tax blog writer with over 10 years of expertise in navigating complex tax matters. For more than three years, his insightful blogs have empowered UK taxpayers with clear, actionable advice. Leading Advantax Accountants as well, Adil blends technical prowess with a passion for demystifying finance, cementing his reputation as a trusted authority in tax education.
Email: adilacma@icloud.com
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