Are You MTD-Exempt?

Published by Talha Zubair posted in Making Tax Digital on 6 April 2026

MTD exemptions exist, but they are tightly defined and different for VAT and Income Tax in the UK. The key is checking which regime applies to you and then whether HM Revenue & Customs (HMRC) treats you as automatically exempt or expects you to apply.

What “MTD-exempt” means

Being MTD-exempt usually changes the method of reporting, not the duty to report. If you are exempt from MTD for Income Tax, you will not have to use MTD for Income Tax, but you must continue to report your income and gains through Self Assessment as normal.

For VAT, you are exempt only if HMRC is satisfied an exemption applies or you fall into an automatic exemption category.

MTD for VAT exemptions

MTD for VAT applies if you are VAT-registered. The VAT registration threshold is £90,000 of taxable turnover over a rolling 12-month period (in place since 1 April 2024).

Once registered (including voluntary registration), HMRC require VAT-registered businesses to keep digital records and submit VAT Returns using software.

VAT exemption route	How it works
Insolvency procedure	Automatic in HMRC guidance.
Cancelled VAT registration but still need a final return	Automatic in HMRC guidance.
Not practical to use digital tools (age, disability/health, location, no internet)	You must apply and HMRC assess your circumstances.
Religious grounds	HMRC must be satisfied; the business must be run entirely by practising members of a religious society/order whose beliefs are incompatible with electronic communications/records.
Already exempt from filing VAT returns online	HMRC can accept existing online-filing exemptions.

These routes come directly from HMRC’s MTD for VAT exemption guidance and VAT Notice 700/22.

HMRC are clear that inconvenience is not enough. VAT Notice 700/22 says an exemption is not granted solely because switching takes extra effort, time, or cost where HMRC considers it reasonable.

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MTD for Income Tax exemptions

The MTD for Income Tax becomes mandatory in phases from 6 April 2026, based on “qualifying income” from self-employment and property:

Over £50,000 in 2024 to 2025 → mandated from 6 April 2026
Over £30,000 in 2025 to 2026 → mandated from 6 April 2027
Over £20,000 in 2026 to 2027 → mandated from 6 April 2028

Automatic MTD for income tax exemptions includes a qualifying income of £20,000 or less, having no National Insurance number, and certain roles/statuses (for example, trustees and personal representatives). HMRC also exempts people who are not physically or mentally capable, where a power of attorney or court-appointed deputy acts for them.

The main exemption you must apply for is digital exclusion. HMRC describes such situations as cases where it is not reasonable for you to use compatible software to keep records, send quarterly updates, or submit the return.

Examples include disability or health issues, religious beliefs that prevent the use of digital devices, and lack of internet access without a suitable alternative.

HMRC also lists reasons they will not accept it on their own: filing on paper in the past, unfamiliarity with software, having only a few records, or the extra time/cost of switching.

Making Tax Digital for Income Tax: £50k Sole Traders Face Mandatory Quarterly Reporting from 2026

How to apply for an MTD exemption

For VAT and Income Tax, HMRC say you apply by contacting them (usually by phone or in writing). For VAT, HMRC asks for details such as your VAT registration number, business name and address, how you currently file, and why you cannot comply.

VAT Notice 700/22 says HMRC will make the decision after you provide the necessary information; you will receive the decision in writing, and you should continue filing VAT Returns in the usual way while you are waiting for HMRC to decide (or while an appeal is ongoing).

For Income Tax, HMRC set timings. If you need to start on 6 April 2026, you can apply now. If your start date is later, HMRC indicates you should apply from the summer before you are mandated.

HMRC also notes that if an agent keeps your records digitally and submits through compatible software on your behalf, you may meet the requirements without needing a digital-exclusion exemption.

How We Can Help Comply With MTD Regulations

At Apex Accountants, we offer tailored advice to help businesses navigate MTD regulations and exemptions. Whether you’re uncertain about your compliance obligations or need help setting up digital systems, our team can assist you every step of the way. From VAT to ITSA, we provide expert support to ensure your business stays on track.

VAT Planning & Compliance
MTD Preparation and Software Integration
Tax Advice for MTD Exemptions
Ongoing Tax Support and Consultancy

If you’re unsure about your MTD obligations or need help applying for an exemption, don’t hesitate to Book a Free Consultation with our team today.

FAQs

1. I’m under the VAT threshold. Am I exempt?

If you are not VAT-registered, MTD for VAT does not apply. If you are VAT-registered, it applies unless HMRC accepts an exemption.

2. Does no internet count?

Potentially. HMRC cites lack of internet access (including because of where you live) as a possible basis for VAT exemption and lack of internet access with no suitable alternative as a basis for Income Tax digital exclusion.

3. Can I use spreadsheets?

For VAT, HMRC explains that spreadsheets can be part of “functionally compatible software” when used alongside software (such as bridging software) that can submit to HMRC via the API.