MTD for Income Tax Exemptions and Digital Exclusion

Making Tax Digital for Income Tax asks self-employed people and landlords above an income threshold to keep digital records and send HMRC regular updates. Most people will need to comply. A small number can ask to be exempt, and the best known route is called digital exclusion. This guide explains who might qualify, how the process works in practice and what to do if your request is refused.

Key takeaways

• Exemption is not automatic. You normally need to apply to HMRC and receive a decision.
• Digital exclusion is about it not being reasonably practicable to use digital tools, for example because of age, disability or where you live.
• Being unfamiliar with software is not usually enough on its own.
• Even if you are exempt, you still file a Self Assessment return and pay your tax.
• Handing your records to an accountant is often a simpler answer than an exemption claim.

What does "digital exclusion" mean?

Digital exclusion is HMRC's term for situations where it is not reasonable to expect someone to follow Making Tax Digital because they cannot use digital tools. The usual examples are age, a disability, a lack of broadband or mobile coverage where you live, or certain religious beliefs. HMRC considers each request on its facts. The wording and the list of circumstances can change, so always read the current position on GOV.UK's Making Tax Digital for Income Tax guidance.

First, check you are in scope at all

Many people ask about exemption when they are not caught by the rules in the first place. Making Tax Digital for Income Tax is being phased in by qualifying income, which means your gross income from self-employment and property above the threshold that applies to the relevant tax year. If your income is below the threshold, you do not need to do anything yet. Our guide to MTD for Income Tax eligibility walks through how qualifying income is measured, and the current thresholds and start dates are on GOV.UK.

Who might qualify for an exemption?

HMRC lists a handful of groups who can ask not to be bound by the rules. In broad terms these cover people who cannot use digital services for reasons linked to their age, a disability, their location or their religion, and a few specific situations such as people who are subject to insolvency procedures or who do not have a National Insurance number. Different groups are treated in different ways, and some are exempt by virtue of their circumstances while others must apply. The detail matters, so check the up to date list rather than relying on an article like this one.

What does not count

A lack of confidence with technology, a dislike of cloud software or a preference for paper are not on their own the same as digital exclusion. Nor is the cost of software, because there are low cost and sometimes free options, and because an accountant can use software on your behalf. HMRC is likely to ask whether there is a practical way for you to comply, including by using an agent. If there is, a request based only on preference may be refused.

How the process works

Worked example (illustrative)

"Nadia", an illustrative example, is a self-employed private hire driver. She has had a limited phone signal where she lives and has never used accounting software. Her income is above the qualifying threshold, so she worries about the new rules. Nadia first checks whether she genuinely cannot use digital tools. She can send photos of her receipts by phone and her accountant can use compatible software for her, so a digital exclusion claim may not be necessary. She decides to keep simple records and hand them over each quarter.

Now consider "Colin", another illustrative example, a retired landlord with a medical condition that makes using screens very difficult, and with no one in the household who can help. His case looks closer to what the exemption was designed for. He gathers a short written explanation, applies to HMRC through the route on GOV.UK and keeps a copy of everything. Whether either person is accepted depends on HMRC's decision, not on this article.

If your request is refused

A refusal does not mean you are out of options. You can ask HMRC why the decision was made and, if you disagree, there is a review and appeal route described on GOV.UK. In many cases, the more practical answer is to adapt: use software that suits you, ask a friend or relative to help, or appoint an agent to submit on your behalf. Our MTD compliance team works with people at every level of confidence with technology.

Common mistakes

• Assuming exemption is automatic. You normally need HMRC's agreement before you can rely on it.
• Stopping record keeping while you wait. If HMRC says no, you will be glad you kept the records.
• Confusing exemption with being below the threshold. These are different situations with different consequences.
• Forgetting the Self Assessment return. Exemption does not remove the annual return.
• Not telling HMRC when things change. If your circumstances improve, the exemption may no longer apply.

Practical alternatives to exemption

If your difficulty is mainly confidence rather than a barrier that cannot be overcome, a few practical steps help. Choose simple software with a mobile app, photograph receipts as you go, and ask an accountant to review each quarter. You can read more about the cost of this support in our guide to MTD accountant costs. The deadlines you would work to are covered in MTD quarterly update deadlines. You can also read the official wording on GOV.UK's Making Tax Digital collection.

Not sure whether exemption or support is the better route for you? Talk to us about our personal tax service and we will help you work out the sensible next step, with no obligation.