(UK) — HM Revenue and Customs (HMRC) has granted 661 exemptions from Making Tax Digital (MTD) for Income Tax as of January 31, 2026, even though 1,271 people have applied since September 29, 2025. That gap matters. Exemptions are real, but they are not automatic for most applicants, and they affect a tiny share of the people who will soon have to comply.
MTD for Income Tax changes how many sole traders and landlords in the United Kingdom keep records and report income. Instead of relying mainly on an annual Self Assessment process, in-scope taxpayers must keep digital records, use HMRC-compatible software, send quarterly updates, and complete end-of-year finalisation steps. The rollout timeline and income thresholds decide when you enter the system, while exemptions exist for people who cannot reasonably comply.
1) Overview: HMRC exemptions from Making Tax Digital (MTD) for Income Tax
Start with the scale. HMRC has received 1,271 applications for exemption and has made 881 decisions, with 220 denials, by January 31, 2026. That leaves many applications still in progress. Approval is possible. It is also not guaranteed.
Next, look at how small the exempt group is compared with those affected. The 661 exemptions represent less than 0.1% of the 780,000 sole traders and landlords who have over £50,000 in 2024-25 qualifying income and are expected to move to MTD for Income Tax from April 6, 2026. Most people who are in scope should plan to comply, not plan to be excused.
MTD for Income Tax is also not just a “new form.” For many businesses and property owners, it changes day-to-day work:
- Records must be kept digitally (not just stored as scanned PDFs).
- Quarterly updates must be sent through compatible software.
- Year-end steps still exist, including finalisation.
Exemptions exist because a digital system can block people who lack internet access, face disability barriers, or have other serious reasons they cannot use digital tools. HMRC’s early exemption numbers show the program is designed to move the majority into digital reporting, while still leaving a route out for limited cases.
2) Exemption criteria and process
Applied exemptions generally focus on digital exclusion. HMRC’s core grounds include cases where a person cannot use digital tools due to age, disability, lack of internet access at home or business (with no suitable alternative), or religious objections to digital filing. Many applications are assessed case-by-case.
Denials happen for common reasons. “I’m unfamiliar with software” is not automatically enough. HMRC may refuse requests based only on past paper returns, limited digital records, perceived extra time or cost, or discomfort with changing how you keep books. The point is capability and access, not preference.
Automatic exemptions are separate from applied exemptions. Automatic exemptions can be granted based on 2024-25 tax return details, without you applying. Applied exemptions require an application and a decision.
Temporary versus longer-term treatment also matters in practice:
- Some applied exemptions can be permanent unless circumstances change.
- Other exemptions may be temporary, granted until at least April 2027, with a review point rather than an open-ended status.
That review timing is a planning issue. If you receive a temporary exemption, you may still want a basic digital recordkeeping plan in case you later need to enter MTD for Income Tax.
⚠️ Automatic exemptions apply based on 2024-25 tax return details; many cases still require case-by-case assessment—don’t assume automatic exemption without confirmation
Finally, keep the “out of scope” category separate from exemption. Some entity types are automatically out of scope for MTD for Income Tax as described in current rollout planning, including trusts, estates, non-resident companies, and limited companies. That is different from an individual exemption. An individual may need to apply, while an entity type may not be within the regime at all.
What you must do if you’re exempt
Being exempt from MTD for Income Tax does not remove your tax responsibilities. In many cases, you must continue Self Assessment. Operationally, that usually means:
- Keep whatever records you need to complete an accurate return.
- File your Self Assessment tax return using the existing process.
- Pay tax by the normal deadlines.
HMRC began accepting exemption applications on September 29, 2025. If you expect you may qualify, timing matters because decisions can take time and MTD start dates are fixed for many taxpayers.
Table 2: Exemption status snapshot
| Exemption Type | Who Qualifies / Who is Automatically Exempt | Operational Impact |
|---|---|---|
| Automatic exemption | Granted based on 2024-25 tax return details, without an application | You typically stay on Self Assessment rather than quarterly updates |
| Applied exemption (case-by-case) | Digital exclusion due to age, disability, lack of internet/access (no suitable alternative), or religious objections | You continue Self Assessment; exemption may be permanent unless circumstances change, or temporary until at least April 2027 |
| Automatically out of scope (entity type) | Trusts, estates, non-resident companies, limited companies | Different from an individual exemption; requirements depend on the entity’s tax regime |
3) MTD for Income Tax rollout: phases, thresholds, and dates
MTD for Income Tax is phased in by qualifying income and by reference tax year. HMRC looks at your qualifying income in a prior tax year to decide when you must start. Your start date is then tied to a new tax year beginning on April 6.
Core obligations stay the same across phases:
- Maintain digital records of business and/or property income and expenses.
- Use HMRC-compatible software (for example, Xero, QuickBooks, or bridging software if you keep spreadsheets).
- Send quarterly updates through the software.
- Complete end-of-year finalisation steps after the tax year ends.
The first year can feel messy. Many people will still be wrapping up the prior-year Self Assessment while also starting quarterly updates under MTD for Income Tax. Plan staffing and bookkeeping time for overlap.
Table 1: Phased thresholds and start dates for MTD rollout
| Phase | Qualifying Income Threshold | Start Date |
|---|---|---|
| Phase 1 | >£50,000 (2024-25) | April 6, 2026 |
| Phase 2 | >£30,000 (2025-26) | April 6, 2027 |
| Phase 3 | >£20,000 (2026-27) | April 2028 |
Two practical notes can prevent mistakes:
- “Qualifying income” and “profit” are not the same concept for many taxpayers. Check the definition HMRC uses for MTD entry tests.
- A change in income can shift when you enter. Keep an eye on your 2024-25, 2025-26, and 2026-27 figures because they trigger later phases.
Remote workers and digital nomads who file in the United Kingdom may face extra friction here. Frequent travel can break routines, and quarterly reporting punishes disorganised recordkeeping. Stable software and a reliable process help when your working location changes month to month.
4) Rollout uptake and activity to date
HMRC is already pushing onboarding activity. Over 37,000 users have registered, and 13,500 have submitted test updates. Thousands are reported to be signing up daily. Testing shows software connections and reporting flows can work, but it is not the same as being fully ready for quarterly reporting across a full tax year.
Expect a transition period where you do two kinds of work at once:
- Regular Self Assessment tasks for earlier tax years.
- New quarterly update routines once your MTD start date arrives.
HMRC communication is also part of the rollout. Confirmation letters may include GOV.UK links, and HMRC has run 300+ events. Those are legitimate channels. Even so, be careful with unexpected messages. In many cases, the safest approach is to start from GOV.UK rather than clicking links in emails or texts.
If you use an agent, align early on who will do what. Quarterly updates can be prepared by you, by your agent, or shared between you, depending on your software setup and the agent’s systems.
5) Preparation steps and practical guidance
What you’ll need before you start
Gather three things first:
- Your recent Self Assessment details and a clear view of your income sources.
- A recordkeeping method you can follow weekly.
- Software that is HMRC-compatible for MTD for Income Tax.
Next, work through preparation in an order that avoids rework.
- Confirm whether you’re in scope. Check your 2024-25 qualifying income to see if Phase 1 applies from April 6, 2026. Keep an eye on 2025-26 and 2026-27 for later phases.
- Check for exemption grounds early. If you think digital exclusion applies, gather evidence that supports your circumstances. Be ready to explain access limits or barriers. Preference is usually not enough.
- Pick a workflow: full software or bridging. Full accounting software can handle invoicing, bank feeds, expense capture, and reporting in one place. Bridging software can work if you maintain spreadsheets and need a compliant link to HMRC. “Compatible” means the software can send required updates in the format HMRC accepts.
- Set your bookkeeping cadence. Quarterly updates are easier when you reconcile weekly or monthly. Leave it all to quarter-end and you may miss items.
- Sign up early where possible. Early sign-up can give you time to set categories, test processes, and fix errors before deadlines become real. Pilots and voluntary participation may exist below thresholds, depending on HMRC rules at the time you join.
- Do not assume VAT MTD experience is identical. VAT MTD has existed since April 2019 (fully by 2022) for many businesses, but Income Tax MTD adds different reporting rhythms and year-end steps. Similar tools can still behave differently.
- Set internal deadlines. The government has said there will be no further delays. Treat your phase start date as fixed for planning. Build a schedule for training, software setup, and record cleanup.
✅ If you think you might be exempt or in scope, check GOV.UK eligibility tools now and prepare your records for potential quarterly updates
For people who travel often or work remotely, add one more step: make receipts capture simple. Phone-based capture and bank feeds reduce the risk of losing documents while abroad, and they can keep quarterly updates from turning into a scramble.
6) Context and related policy notes
Digital compliance programs create winners and losers. Many taxpayers benefit from cleaner records and fewer mistakes. Others face real access barriers. Exemptions exist to keep the system workable and fair, while still pushing most people toward digital reporting.
Enforcement also tends to follow the shape of the rules. As MTD for Income Tax expands from Phase 1 to Phase 2, HMRC will likely focus on helping people onboard, then on checking whether quarterly updates are being sent. Exemptions sit inside that system as a safety valve, not as the main path.
Phase 3 is tied to April 2028 and described as “legislation planned.” That phrase matters because legal text and HMRC guidance can still change definitions, entry tests, and operational rules. Treat published dates as planning anchors, while staying ready to adjust.
Monitor three things on GOV.UK as your start date approaches:
- Updated guidance on qualifying income and entry rules.
- Software compatibility lists and product changes.
- HMRC messages about signing up, testing, and deadlines.
Tax and regulatory information is subject to change. Readers should consult HMRC guidance and seek professional advice for individual circumstances.
This article presents policy context and rollout details as of the stated dates; procedures may evolve with future guidance.
Your next concrete step is simple: confirm whether your 2024-25 qualifying income puts you above £50,000, because that result controls whether April 6, 2026 is your start line.
