MTD Exemptions, Deferrals and Easements: Who Does Not Need to Comply

Not everyone with qualifying income above the MTD thresholds actually has to comply with MTD for Income Tax. HMRC has built in a set of exemptions, deferrals, and easements that recognise the practical realities of certain taxpayer groups, certain income types, and certain personal circumstances.

Some exemptions apply automatically — you don't need to do anything, and HMRC treats you as outside scope. Others require an application, typically supported by evidence of why compliance is not practical. A third group are deferrals — the policy intention is to bring them in eventually, but not during this Parliament. Finally, there are easements — small simplifications that apply even if you are in MTD, designed to reduce the admin burden for specific situations.

This post covers all of these categories in detail. If you think you might not need to comply with MTD, or if you are looking for ways to make compliance easier, this guide sets out the options.

Automatic exemptions (no application needed)

The following groups are automatically exempt from MTD IT without needing to apply:

• Trustees (including charitable trustees and trustees of non-registered pension schemes).
• Personal representatives of someone who has died (managing the deceased's estate).
• Non-resident companies chargeable to income tax on UK property income.
• Individuals without a National Insurance number on 31 January before the start of the tax year.
• Individuals with qualifying care receipts — foster carers, shared lives carers, and similar categories.

If you fall into any of these groups, you do not need to sign up for MTD or apply for exemption. HMRC will simply not include you in the MTD population for ITSA.

The trust exemption is particularly worth noting. Most trustees are exempt, but beneficiaries of certain trusts — bare trusts and interest-in-possession trusts where rental income is paid directly to them — still include that income in their personal qualifying income for MTD purposes. The trust itself is exempt, but the beneficiary may not be.

Exempt by application (must contact HMRC)

The following categories may be exempt from MTD IT, but only after a successful application to HMRC:

• Digitally excluded individuals. This covers age, disability, location, religious beliefs, or any other circumstance that makes digital compliance impractical.
• Customers with a Power of Attorney. Where someone acts under a Power of Attorney for another person.
• Non-UK resident foreign entertainers or sportspeople with no other qualifying income.
• Customers for whom HMRC cannot provide a digital service. This is relatively rare but exists for unusual cases where HMRC's own systems are not equipped to handle the customer's situation.

Applications are made through HMRC's standard exemption process. You provide evidence of why compliance would be impractical, and HMRC considers the application on its merits.

Importantly, if you are already exempt from MTD for VAT on digital exclusion grounds, you do not need to apply separately for MTD IT. Your existing exemption carries over.

The digital exclusion category is broader than many people realise. Age on its own is not automatically grounds — an 85-year-old who uses Facebook daily would not be digitally excluded. But age combined with limited IT literacy, no reliable broadband connection, or genuine difficulty operating software can be. Similarly, living in a remote area with poor connectivity can be relevant, as can religious beliefs that restrict the use of certain technologies.

Deferred groups (not required during this Parliament)

Some groups have had their MTD IT entry deferred until at least the next Parliament:

• Ministers of religion.
• Lloyd's underwriters.
• Recipients of the Married Couples' Allowance.
• Recipients of Blind Persons' Allowance.
• Individuals filing SA109 (the Self Assessment supplement for residence and remittance basis). SA109 filers are deferred until April 2027, when they will be brought into MTD IT.

The Married Couples' Allowance and Blind Persons' Allowance deferrals recognise that these are relatively small populations with specific administrative circumstances where bringing them into MTD quickly was not a priority. The ministers of religion and Lloyd's underwriters deferrals reflect unique income arrangements that don't fit neatly into the standard MTD framework.

Partnerships are also deferred. The MTD entry date for partnerships has not been announced. Partners in partnerships continue to file traditional Self Assessment returns for their partnership profit share, and that profit share does not count as their personal qualifying income for MTD purposes.

Easements for those in MTD

Even if you are in MTD, certain simplifications (easements) are available to reduce the admin burden. These do not take you out of MTD but make compliance easier.

Easement	Application Required?
Three-line accounting (turnover below VAT threshold)	No
Retail sales — gross daily takings instead of individual transactions	No
Jointly owned property — expense details submitted at year-end only; main digital records maintained by one party only	No

Three-line accounting

If your turnover is below the VAT threshold (currently £90,000), you can submit quarterly updates using a simplified "three-line" format — total income, total expenses, and resulting profit. This is much easier than full categorisation and suits very small businesses that don't need detailed management information.

For property, three-line is slightly modified — residential finance costs must still be identified separately because they are subject to the Section 24 basic rate restriction, so it becomes "four-line" in practice.

Retail sales aggregation

Retailers generating large numbers of small transactions can record gross daily takings rather than individual transactions in their digital records. This is a common-sense easement — a café serving 200 customers a day would otherwise have to record 200 separate transactions, which is not a useful level of detail for HMRC and is not practical for the business.

The gross daily takings figure must still be recorded digitally, just at day level rather than transaction level. Supporting till records and Z-reads are kept as evidence.

Joint ownership easement

For jointly owned property, one party can maintain the main digital records on behalf of the joint ownership. There is no requirement for digital links between co-owners' separate systems, and expense details can be submitted at year-end only rather than quarterly.

This easement recognises that duplicate bookkeeping between co-owners would be absurd — the same property, the same transactions, entered twice in parallel systems. One set of main records, shared between the co-owners (perhaps with appropriate software access), is enough.

Once you are out, how do you stay out?

For taxpayers who have been brought into MTD but whose qualifying income later drops below the threshold, there is a specific exemption route: from the fourth year onwards, you can claim exemption if your qualifying income has been below the threshold for each of the three preceding years.

This is a deliberate anti-churn measure. HMRC does not want taxpayers bouncing in and out of MTD year by year as their income fluctuates. The three-year rule means you need a sustained period below the threshold before exemption can be claimed.

Below the £50,000 threshold in 2027/28, 2028/29, and 2029/30? You could potentially claim exemption in 2030/31. But a single year above the threshold in any of those three years resets the clock.

Exclusion powers under Finance Bill 2026

The Finance Bill 2026 gives HMRC new powers to treat an exempt individual as never having been within scope. This is useful in situations where someone was incorrectly brought into MTD, subsequently became exempt, or had some other procedural issue.

The practical effect is that historical non-compliance penalties can be avoided in cases where HMRC uses this exclusion power. It is particularly relevant for late applications for exemption, where without this power a taxpayer might have been penalised for the period between joining MTD and being granted exemption.

How to apply for an exemption

Applications for MTD IT exemption are made to HMRC directly. The process typically involves:

1. Identifying the grounds on which you are seeking exemption (digital exclusion, Power of Attorney, etc.).
2. Preparing a written application setting out the circumstances and any supporting evidence.
3. Submitting the application through HMRC's designated channel (currently this involves writing to a specific HMRC address — check GOV.UK for the current process).
4. Awaiting HMRC's decision.

If your application is rejected, you have appeal rights — the decision can be challenged through HMRC's internal review process and onward to the First-tier Tax Tribunal.

There is no fixed time limit for submitting an application, but it should obviously be made before the date you would otherwise need to comply. Late applications are possible but risk penalties for the period between your mandate date and the application being accepted.

A note on software choice and easements

If you are in MTD but qualify for easements, make sure your software supports them. Most MTD-compatible tools handle three-line accounting and retail takings aggregation, but not all do. If you know you want to use an easement, check before you commit to a particular software package.

Similarly, for jointly owned property, look for software that supports multi-user access or shared workspaces, so that one co-owner can maintain the main records while the others access them as needed for their own quarterly updates.

Frequently Asked Questions

Q: I am 78 years old. Am I automatically exempt from MTD? A: No — age alone is not automatic grounds for exemption. But age combined with practical difficulties around digital compliance (limited IT literacy, no broadband, etc.) can qualify you for a digital exclusion exemption. You would need to apply and provide evidence.

Q: I am a partner in a trading partnership. Am I in MTD? A: Your partnership profit share is not counted as qualifying income for your personal MTD status. So if you have no personal sole-trader or property income, you are not in MTD IT based on partnership profits alone. The partnership itself will eventually be brought into MTD at a date yet to be announced.

Q: I already have an exemption from MTD for VAT. Do I need to apply again for MTD IT? A: Only if your VAT exemption was on something other than digital exclusion grounds. If you have a digital exclusion exemption for VAT, it carries over to MTD IT automatically — no separate application needed.

Q: Can I use the three-line accounting easement if I have multiple small businesses? A: The easement applies per business, based on each business's turnover. So you can use three-line for a business under the VAT threshold even if another of your businesses is above it and requires full categorisation.

Q: What if my income drops below the threshold after I am in MTD? A: You stay in MTD initially. From the fourth year onwards, you can claim exemption if your qualifying income has been below the threshold for each of the three preceding years. Until then, you continue to comply.

Conclusion

MTD for Income Tax has more exits and simplifications than a first read of the rules might suggest. Automatic exemptions catch a range of groups who shouldn't reasonably be expected to comply — trustees, personal representatives, non-resident companies, people without NI numbers. Application-based exemptions protect the digitally excluded and others with practical barriers. Deferrals give time to specific groups that don't fit the standard model. And easements make compliance lighter for retailers, small businesses under the VAT threshold, and joint property owners. Check whether any of these apply to your situation — you may not need to do as much as you think. And if you do need to comply fully, at least you'll know you have explored the alternatives.