Making Tax Digital for Income Tax is transforming how UK freelancers, sole traders, and landlords report their earnings to HMRC. But not everyone will be required to comply, and not all at once. HMRC has built in a phased rollout based on income thresholds, along with a framework of exemptions for those who genuinely cannot meet the digital requirements.
If you're a freelancer earning around £45,000 a year and wondering whether you need to start filing quarterly, or if you're curious about who qualifies for an exemption and how to apply, this guide covers everything you need to know.
What is Making Tax Digital?
Making Tax Digital (MTD) for Income Tax is an HMRC initiative that replaces the single annual Self Assessment tax return with digital record‑keeping and four quarterly updates submitted through compatible software. The aim is to reduce errors, improve tax accuracy, and give taxpayers a clearer picture of their financial position throughout the year.
The rollout is happening in stages, with thresholds based on qualifying income:
Phase | Start date | Qualifying income threshold |
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Qualifying income for MTD means your total business or property turnover before expenses – salary, pensions, and dividends do not count. This is an important distinction: it's your gross income from self‑employment or rental activities, not your taxable profit.
For more information, read our guide to MTD for Income Tax.
Understanding Making Tax Digital exemptions
An MTD exemption is a formal dispensation from HMRC that allows an eligible taxpayer to continue using traditional methods to keep records and submit tax returns, either temporarily or permanently. An exemption from MTD for Income Tax may be permanent (such as for digital exclusion) or temporary (such as a one‑year waiver for specific return types).
HMRC provides both automatic and applied‑for exemptions from MTD for Income Tax. The exemptions framework was confirmed as of 30 December 2025, and the initial expansion is expected to affect around 860,000 people. It's worth noting that MTD for VAT has already been in effect for VAT‑registered businesses since April 2022 – you can read more in Tide's MTD for VAT guide.
Who is exempt from MTD?
Understanding who is exempt from MTD helps you determine whether you need to take action or can continue filing as normal. Exemptions fall into these broad categories.
Permanent automatic MTD exemptions
Some taxpayers are simply not affected by MTD for Income Tax and need take no action:
Limited companies are not affected – the requirement applies only to unincorporated businesses
Partnerships are exempt from MTD unless they are VAT‑registered
Taxpayers with qualifying income below the relevant threshold for that phase
MTD exemptions that apply until your circumstances change
Certain taxpayers are permanently exempt from Making Tax Digital for Income Tax unless their financial or personal situation changes. In these cases, you don’t even need to apply for an exemption; it’s applied automatically.
1. Income under the threshold
If your qualifying income is £20,000 or less, you’re automatically exempt. You can continue to manage your tax affairs through the traditional Self Assessment process.
2. No National Insurance (NI) number
You can’t sign up for MTD if you don’t have a National Insurance number before the tax year begins.
So, if you received your NI number on 30 April 2026, you remain exempt from MTD for the entire 2026/27 tax year – even if your income from the previous year was well over the threshold (eg, over £50,000).
💡 Top tip
Always keep an eye on your qualifying income. If it rises above the £20,000 mark in a future tax year, you may lose your exempt status and need to transition to MTD.
MTD exemptions based on your role
If you manage tax affairs for specific entities, you may be exempt from the digital reporting requirements and should continue filing via Self Assessment as usual.
Trustees submitting an SA900 (including charitable trusts and non-registered pension scheme trusts)
Non-resident companies submitting an SA700
Anyone managing the tax affairs of someone who has passed away is exempt for their estate (though must make sure that all outstanding Self Assessment returns are complete)
💭 Something to remember
These exemptions only apply to the specific entity you are representing. If you receive your own personal income from self-employment or property that meets the MTD threshold, you’ll still need to sign up and report that income through MTD-compatible software.
Temporary automatic MTD exemptions
HMRC has introduced one‑year waivers for certain taxpayers who would otherwise be mandated in 2026-27. This automatically applies if your 2024/25 tax return included any of the following:
Averaging relief claims: For farmers, market gardeners, or creators of literary and artistic works (using SA103 or SA104 pages)
Qualifying care relief: Typically claimed by foster carers or kinship carers
Trust and estate income: If you included the SA107 supplementary page
Residence and remittance basis: If you included the SA109 supplementary page (relevant for non-UK domiciliaries or those with complex residence status)
If you fall into one of these categories, you don’t need to apply for an exemption - you’ll receive one automatically. However, you will likely need to start using Making Tax Digital compatible software from April 2027 if your qualifying income exceeds £30,000 in the 2025/26 tax year.
MTD exemptions you can apply for
If you don't fit the categories above but aren’t able to use digital tools, you can apply for an exemption based on your personal circumstances.
Valid reasons for HMRC | Invalid reasons (Will be rejected) |
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✅ Health/age eg, physical or mental conditions that prevent computer use | ❌ Preference eg, you just prefer paper or don't like software |
✅ Religion eg, beliefs that forbid the use of digital technology | ❌ Cost eg, the software is too expensive or takes too much time |
✅ Location eg, no internet access at home or a suitable alternative | ❌ Volume eg, you only have a few receipts to log |
💭 Something to remember
If you’ve already been granted a digital exclusion for VAT, you likely won't have to re-prove it for Income Tax. Just contact HMRC with your NI and VAT numbers to confirm your status carries over.
How to apply for a Making Tax Digital exemption
Not all MTD exemptions are automatic – some require a formal application to HMRC. You can manage the application yourself, but HMRC also allows the following people to apply on your behalf:
Authorised tax agents: Accountants or tax professionals
Friends or family: You can nominate someone you trust, though they must have your explicit verbal or written authorisation to act on your behalf
If you believe that you or another individual qualifies, here's how to apply for an MTD exemption.
Step 1: Figure out when you need to apply
Submit your application well before your expected MTD start date. For the 2026-27 tax year, you can apply now. For those not required to join until 2027 or 2028, HMRC recommends waiting until the summer of the year prior to your start date to submit your request.
Step 2: Confirm you have a valid exemption reason
We’ve already outlined the approved reasons, but HMRC assesses applications on a case‑by‑case basis.
Step 3: Gather key information
What you need depends on whether you are applying for yourself or for someone else. Make sure you have the following ready:
Applying for yourself | Applying for someone else |
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Your National Insurance (NI) number | Their NI number, name, and address |
| Your connection to the applicant (eg, agent) |
A detailed explanation of why you should be exempt | A detailed explanation of why the applicant should be exempt |
For digitally excluded exemption applications, you must also provide:
Details of how you (or the applicant) currently submit tax returns, including if anyone else assists
If an agent is involved and a description of exactly what that agent does
Any additional information you can provide regarding additional needs
Depending on your circumstances, you may also need to provide:
Medical documentation or a letter from your GP
Evidence of no internet access at your location
Details of any additional needs so that HMRC can provide the right support
Step 4: Contact HMRC
To apply for an MTD exemption, you can contact HMRC through Self Assessment: general enquiries.
If you’re an agent or applying on behalf of someone else, you’ll need to use the right Agent Dedicated Line.
💭 Something to remember
If you’re applying by post, HMRC have requested you use one of the following subject titles:
‘Making Tax Digital for Income Tax – digitally excluded application’ if applying for a digitally excluded exemption
‘Making Tax Digital for Income Tax – exemption application’ if applying for any other exemption
Step 5: After you’ve submitted your application
Once your application has been submitted, HMRC typically aims to respond within 28 days. During this time, they might be in touch to verify details or request additional evidence to support your application.
While you wait for a decision:
Keep standard records: Continue maintaining your records and supporting documents as you normally would for Self Assessment
Prepare for MTD: It’s a good idea to familiarise yourself with the MTD sign-up process just in case your application is not approved
If your application is successful
HMRC will send you a confirmation letter detailing the type of exemption granted and its duration. If you’ve been granted an exemption for the 2026/27 tax year, you’ll remain under the traditional Self Assessment penalty system rather than moving to the new MTD penalty points regime.
If your application is rejected
If HMRC denies your request, they’ll explain why in a decision letter. If you disagree, you have the right to appeal:
You generally have 30 days from the date of the decision letter to lodge an appeal
Appeals must be submitted in writing to the address provided in your letter
Much like the initial application, use clear titles such as ‘Making Tax Digital for Income Tax – digitally excluded appeal’ or ‘Making Tax Digital for Income Tax – exemption appeal’.
If you need more time to gather evidence for an appeal, you should contact HMRC immediately to request an extension.
Preparing for mandatory MTD compliance
If you don't qualify for an exemption – or your exemption is only temporary – starting your preparations now will help you transition smoothly when your threshold phase arrives.
MTD preparation checklist
Confirm your qualifying turnover. Check your 2024/25 Self Assessment return for the relevant boxes (SA103F/S boxes 15/16, SA103S boxes 9/10) to determine which phase includes you
Choose HMRC‑recognised MTD software. You must keep digital records using HMRC‑recognised MTD‑compatible software. Tide has both a free tool and a monthly subscription, depending on your needs.
Start digital record‑keeping now. Digital records must include each transaction with the date, amount, and category. Keep digital copies of invoices, receipts, and mileage logs. Basic spreadsheets can meet MTD requirements if you’re using bridging software.
Practise a dummy quarter. Run a test quarterly submission before your official start date to identify gaps in your workflow.
Set calendar reminders. MTD replaces the single annual Self Assessment with four quarterly updates and a final submission. Set yourself reminders ahead of time so you don’t forget.
Retain records for five years. MTD guidance suggests retaining digital records for at least five years after the submission deadline.
Wrapping up
Making Tax Digital for Income Tax is a significant shift in how you’ll interact with HMRC, but it doesn't have to be a source of stress. Whether you qualify for an automatic exemption, need to submit an application for digital exclusion, or simply have a few more years before your income threshold kicks in, the key is staying informed.
If you don't qualify for an exemption, the best way to avoid the last-minute scramble is to transition to digital record-keeping now. Getting your software in place early means you can automate your admin, reduce the risk of manual errors, and get a real-time view of what you owe throughout the year.
Simplify your tax with Tide
Tide is here to make the transition as seamless as possible with HMRC-recognised software that scales with your business. We have two options:
Tide’s Free MTD Tool: Specifically built for the ITSA mandate, our free tool allows you to keep digital records and submit your quarterly updates and final declarations directly to HMRC at no cost. It’s the perfect, straightforward solution for sole traders and freelancers.
Tide Accounting: For those who need more comprehensive support – including MTD for both VAT and Income Tax – Tide Accounting offers automated transaction categorisation, real-time tax estimates, and full filing capabilities from £13.99 + VAT per month.
Ready to stay ahead of HMRC? Open a Tide business account today and discover how our integrated MTD tools can take the paperwork out of your hands, leaving you free to focus on growing your business.
Frequently asked questions
What counts as qualifying income for MTD?
Qualifying income is your total business or property turnover before expenses. It does not include employment salary, pensions, or dividends – only self‑employment and rental income count towards the MTD threshold.
Can my accountant apply for an MTD exemption on my behalf?
Yes, your tax agent or accountant can contact HMRC by phone or post to apply for an MTD exemption on your behalf. If your agent submits returns digitally using compliant software, you also meet MTD requirements without needing an exemption.
Are limited companies affected by Making Tax Digital for Income Tax?
No, limited companies are not affected by MTD for Income Tax. The requirement applies only to sole traders, freelancers, and landlords whose qualifying income exceeds the relevant threshold.
What happens if I don't apply for an exemption and miss the MTD deadline?
If you are mandated for MTD and neither comply nor hold an approved exemption, you may face penalties under HMRC's points‑based penalty system for late quarterly submissions. Apply for your exemption well before your expected start date to avoid this risk.
Can I appeal if my MTD exemption application is rejected?
Yes. If HMRC rejects your application, they will set out the reasons in a decision letter. You generally have 30 days from the date of that letter to lodge a written appeal to the address provided. Use a clear subject line such as ‘Making Tax Digital for Income Tax – digitally excluded appeal’ or ‘Making Tax Digital for Income Tax – exemption appeal’. If you need more time to gather supporting evidence, contact HMRC straight away to request an extension before the deadline passes.
Photo by John on Unsplash
