In a move that has brought relief to thousands of taxpayers across the UK, HMRC announced recently that applications for digital exclusion exemptions are now officially open. This long-awaited announcement comes just six months before Making Tax Digital (MTD) for Income Tax becomes mandatory for the first wave of taxpayers in April 2026; a change being described as the most significant transformation to the UK tax system since Self Assessment was introduced over three decades ago.
If you're one of the many people who struggle with technology or simply don't have access to it, what are your options? Do you need to prepare for MTD or if could you qualify for an exemption?
Before we go into how you can opt out of Making Tax Digital, let's quickly explain what Making Tax Digital is.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is HMRC's ambitious initiative to digitise the way certain taxpayers report their income and expenses. Instead of completing a single annual Self Assessment tax return (usually in a January panic!), eligible taxpayers will need to use digital tools throughout the year to keep records and report to HMRC quarterly.
As HMRC explains on their campaign website, MTD represents "a new way to record and report your income and expenses" that "splits and spreads the admin throughout the year" rather than leaving everything to the last minute. The idea is to make tax administration more efficient, reduce errors, and give taxpayers a better understanding of their tax position in real-time.
Who Does It Apply To?
MTD for Income Tax will affect:
- Sole traders earning income from self-employment
- Landlords with rental income from property
- Tax agents and accountants who manage affairs for these individuals
Importantly, MTD does not currently apply to partnerships, trusts, estates, non-resident companies, or Lloyd's underwriters. These groups will continue using traditional Self Assessment returns for now, though partnerships may be included in future phases.
The Three Core Requirements
If you're caught by MTD, there are three fundamental things you'll need to do:
- Use HMRC-approved software: This could be a mobile app, desktop accounting software, cloud-based platforms, or even "bridging software" that connects your spreadsheets to HMRC. The good news is that free options are available for those with simpler tax affairs.
- Submit quarterly updates: Four times a year, you'll need to send cumulative summaries of your income and expenses to HMRC. The deadlines are August 7, November 7, February 7, and May 7 each year. These aren't full tax returns—just running totals that you can correct later if needed.
- File an annual tax return: By January 31 following the end of the tax year, you'll still need to submit a final declaration, just as you do now. This is where you'll include all your other income sources (like pensions and dividends), claim reliefs and allowances, and finalise your tax bill.
The software does the heavy lifting—it stores your records digitally, does the calculations, and sends the data securely to HMRC at the click of a button.
When is MTD Coming Into Effect?
Here's where it gets a bit complicated. After several delays (it was originally planned for 2023, then 2024), MTD for Income Tax is now being introduced in phases based on how much qualifying income you earn.
Phase 1: April 6, 2026
Who's affected: Sole traders and landlords with qualifying income over £50,000
This is the first mandatory date, now just six months away. If your combined gross income from self-employment and property exceeded £50,000 in the 2024-2025 tax year (the return you filed or will file by January 31, 2026), you'll need to start using MTD from April 6, 2026.
Phase 2: April 6, 2027
Who's affected: Those with qualifying income over £30,000
One year later, the threshold drops to £30,000. If your qualifying income in the 2025-2026 tax year exceeds this amount, you'll be brought into MTD from April 2027.
Phase 3: April 6, 2028 (Planned)
Who's affected: Those with qualifying income over £20,000
The government plans to lower the threshold again to £20,000, though this is still subject to future parliamentary approval. The government has committed to reviewing how MTD can be adapted for smaller businesses before implementing this phase.
Understanding "Qualifying Income"
This is crucial: qualifying income means your gross income (before expenses) from self-employment and property combined. It does not include income from employment, pensions, dividends, or savings interest. So if you're a self-employed consultant earning £40,000 (gross) and you also have £15,000 in rental income (gross), your qualifying income is £55,000—meaning you'll be caught by the April 2026 deadline even though you might make far less profit after expenses.
Want to switch to using Making Tax Digital early?
You can! HMRC has offered voluntary sign-up since the pilot phase began, and a public beta opened in April 2025. If you want to get ahead of the curve and familiarise yourself with the system, you can sign up now. During voluntary participation, there are no penalties for missed updates, making it a risk-free way to learn.
How to Use Making Tax Digital: A Step-by-Step Guide
If you need to comply with MTD (and don't qualify for an exemption), here's what the process looks like:
Step 1: Check Your Status
Use HMRC's online tool on GOV.UK to confirm whether you're mandated, voluntary, or exempt. You'll need your qualifying income figures from your most recent Self Assessment return.
Step 2: Choose Your Software
This is one of the most important decisions. Visit HMRC's software finder tool to browse compatible options. Consider what you need:
- Does it support all your income sources?
- Is it within your budget? (Remember, free options exist!)
- Is it user-friendly enough for your tech skills?
- Does it work on your devices (phone, tablet, computer)?
- If you have an agent, can they access it too?
Step 3: Sign Up and Authorise
Log into your HMRC account (you'll need your Government Gateway credentials), sign up for MTD for Income Tax, and authorise your chosen software to connect to HMRC. This creates a secure digital link between your records and the tax authority.
Step 4: Start Keeping Digital Records
Begin recording your income and expenses digitally. You can enter transactions manually, use bank feeds to import them automatically, scan receipts with your phone, or upload data from spreadsheets via bridging software. The key is that everything must be stored and transmitted digitally—paper records alone won't cut it anymore.
Step 5: Submit Quarterly Updates
Four times a year, review your cumulative income and expenses in your software and click submit. The software sends your data to HMRC automatically. These updates are due by August 7, November 7, February 7, and May 7. Don't panic if you spot an error—you can correct it in your next quarterly update.
Step 6: File Your Annual Return
After your fourth quarterly update, complete your end-of-year tasks. Add in any non-MTD income (employment, pensions, dividends), claim your allowances and reliefs, review HMRC's tax calculation, and submit your final declaration by January 31. This replaces your traditional Self Assessment return.
Step 7: Stay Compliant
Keep your records up to date throughout the year, make sure your software is current, and watch your HMRC account for notifications. Your status is reviewed annually based on your income, so you might move in or out of MTD depending on how your business performs.
Exemptions and Digital Exclusion: Your Way to Opt-Out
Not everyone has to use MTD. HMRC recognises that digital systems aren't suitable for everyone, and several exemptions exist.
Automatic Exemptions
You're automatically exempt without needing to apply if:
- Your qualifying income is £20,000 or less (though this is reviewed every year)
- You're a trustee completing returns for trusts
- You're a personal representative handling a deceased person's estate
- You're a Lloyd's underwriter
- You're a non-resident company
- You don't have a National Insurance number by January 31 before the relevant tax year
Digital Exclusion: The Big One
This is the exemption that's been causing the most discussion. As HMRC defines it, you might be digitally excluded if "it is not reasonable for you to use compatible software to keep digital records or submit them to HMRC." This is assessed case-by-case, and you must apply to HMRC with evidence.
Three Qualifying Reasons
1. Age, Health, or Disability
If an age-related issue, health condition, or disability prevents you from using computers, tablets, or smartphones, you might qualify. Examples include severe visual impairments, arthritis making typing impossible, cognitive conditions affecting digital comprehension, or simply being elderly and having never used technology. You'll need medical documentation from your GP or specialist.
2. Religious Beliefs
If you're a practicing member of a religious society or order whose beliefs prohibit electronic communications and you don't use digital devices for any purpose, you might qualify. You'll need a letter from your religious leader confirming your membership and beliefs.
3. Location and Internet Access
If you genuinely cannot access the internet at your home or business due to your remote location, and no suitable alternatives exist (like libraries or internet cafes within reasonable distance), you might qualify. You'll need letters from internet service providers confirming service isn't available, along with Ofcom broadband data for your postcode.
What Definitely Doesn't Qualify For Exemption
HMRC made it crystal clear recently on what won't get you an exemption:
- Having previously filed paper returns
- Preference for paper over digital
- Not knowing how to use computers or software
- Lack of digital skills or experience
- Having only a small number of transactions
- Cost of software alone
- Time needed to learn the system
- Simply not wanting to change
However, there's a grey area... While cost or lack of skills alone won't qualify you, they might be considered alongside other factors. For instance, an elderly person with limited mobility and prohibitive software costs might have a case, whereas a perfectly capable person who just doesn't want to pay probably won't.
What About Tax Agents?
Here's where it gets interesting. HMRC says that if you have a tax agent who can fulfill all MTD obligations for you, you "may not need to apply for exemption." But what if you can't afford an agent? What if you want to see your own records? What if the agent relationship ends? These are all valid considerations that HMRC says they'll assess individually. Having an agent doesn't automatically disqualify you from digital exclusion—it's just one factor in the "reasonableness" test.
Carrying Over from MTD for VAT
If you're already exempt from MTD for VAT due to digital exclusion, you can contact HMRC to have that exemption carry over to Income Tax; provided your circumstances haven't changed. You'll need to provide your National Insurance number, VAT registration number, and the reason for your VAT exemption. But note, insolvency-based VAT exemptions do not carry over.
How to Apply for a Digital Exclusion Exemption
If you think you might qualify for digital exclusion, here's how to apply:
When to Apply
Make a note of these dates:
- For April 2026 mandate (£50,000+): Apply now (applications opened September 29, 2025)
- For April 2027 mandate (£30,000+): Apply from summer 2026
- For April 2028 mandate (£20,000+): Apply from summer 2027
HMRC aims to process applications within 28 days, but if they need more information, it could take much longer. Apply early to avoid last-minute stress.
How to Apply
Recognising that digitally excluded people can't apply online, HMRC offers two non-digital methods:
Option 1: By Telephone
Call the Self Assessment General Enquiries line: 0300 200 3310
Monday to Friday, 8am to 6pm (excluding bank holidays)
Welsh language line: 0300 200 1900
Be prepared for a 15-30 minute call. Have all your documentation ready to reference, and the advisor will take your details and create your application. Make sure to get a reference number!
Option 2: By Post
Write to:
Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
Use the subject line: "Making Tax Digital for Income Tax - digitally excluded application"
Include all required information (see below) and attach copies of supporting documents. Send via tracked mail if possible, and keep copies of everything you send.
What Information to Include
Every application must include:
- Personal details: Full name, National Insurance number, date of birth, address, contact telephone number
- Current filing method: How do you submit Self Assessment now? Paper returns? Agent? Family help?
- Agent information: If you have an agent, provide their details and explain why they can't handle MTD for you
- Reason for exclusion: This is the most important part! Clearly explain which qualifying reason applies to you and how it prevents you from using digital tools
- Supporting evidence: Attach relevant documents—medical letters, ISP rejection letters, religious leader confirmations, etc.
The Review Process
Once HMRC receives your application, a caseworker will review all your documentation and assess whether your situation meets the digital exclusion criteria. They'll consider:
- Whether your reason falls within the qualifying categories
- The quality and completeness of your evidence
- Whether alternatives exist (like using an agent)
- Whether it's "reasonable" to expect you to comply with MTD
If they need more information, they'll contact you—which resets the processing clock. If approved, you'll receive written confirmation and can continue using traditional Self Assessment. If denied, you'll get a written explanation and have 30 days to appeal.
What to Do While Waiting
HMRC says you should "prepare to use" MTD while awaiting a decision. This is admittedly vague and somewhat contradictory (if you're digitally excluded, how can you prepare?). Practically speaking:
- Don't buy expensive software yet
- Don't pay for extensive training
- Do research software options in case you need them
- Do organise your records (even if paper-based)
- Do have a backup plan (like identifying an agent who could help)
Remember: the first year of MTD will have a "light-touch" penalty approach, with HMRC focusing on education rather than fines for genuine mistakes.
Simply What You Need to Do Now
Simplified, here's what you should do based on your situation:
If You're Definitely Mandated from April 2026 (Income Over £50,000)
- Calculate your qualifying income to confirm your status
- Choose MTD-compatible software and start testing it now
- Sign up for MTD through your HMRC account
- Organise your digital record-keeping systems
- Consider engaging a tax agent if you need support
- If you genuinely can't comply due to digital exclusion, apply for exemption right now
If You Think You Might Be Digitally Excluded
- Review the qualifying criteria carefully and honestly
- Gather supporting evidence (medical records, ISP letters, etc.)
- Apply as soon as possible for your mandate date cohort
- Don't assume you won't qualify—let HMRC assess your case
- Have a backup plan in case your application is denied
If You're Below the Thresholds for Now
- Keep an eye on your qualifying income; it's reviewed annually
- Stay informed about MTD developments and future phases
- Consider voluntary early sign-up to get ahead of the curve
- Watch for updates about the £20,000 threshold implementation
Making Tax Digital is arguably going to reduce errors, improve efficiency, and bring the tax system into the 21st century. The reality is that this is a huge change that will require significant adjustment for many people.
The good news is that exemptions exist for those genuinely unable to participate in digital systems. Digital exclusion applications have provided much-needed clarity, even if some grey areas remain about how narrowly or generously HMRC will interpret the criteria.
With just six months until the first mandatory date, now is the time to act. Whether that means choosing software and getting set up, or gathering evidence and applying for an exemption, don't leave it until the last minute. The first year will be a learning experience for everyone; taxpayers, agents, software providers, and HMRC alike. Being prepared will help you navigate this with confidence rather than panic.
As always help is available. HMRC provides guidance, webinars, and support services. Professional bodies like ICAEW and ATT offer resources for taxpayers and agents. Charities like Tax Help for Older People provide free assistance to qualifying individuals.