| Overview |
Not all clients who meet the qualifying income threshold will be required to file under MTD for Income Tax. HMRC provides a number of exemption categories for clients who genuinely cannot comply with digital filing requirements. This article explains the available exemptions, how to apply for them, and how they are reflected in BrightTax.
| ⚠ Important: Exemption categories and eligibility criteria are set by HMRC and may change. Always refer to current HMRC guidance at gov.uk/guidance/making-tax-digital-for-income-tax before advising clients on exemptions. |
| Available Exemption Categories |
| Exemption Type | Who It Applies To |
|---|---|
| Digital exclusion | Clients who are unable to use digital tools due to age, disability, remoteness of location, or other personal circumstances that make it not reasonably practicable to use digital tools |
| Religious objection | Clients whose religious beliefs are incompatible with the use of electronic communications |
| Insolvency | Clients who are subject to insolvency proceedings |
| Below threshold | Clients whose qualifying income is below the current mandation threshold — these clients are not mandated and do not need to apply for an exemption |
| Other HMRC-approved exemptions | Cases where HMRC has granted an exemption for specific individual circumstances not covered by the categories above |
| How to Apply for an Exemption |
Exemptions are applied for by contacting HMRC directly — they cannot be applied for within BrightTax. The process depends on the type of exemption:
- Digital exclusion — apply by contacting HMRC's MTD helpline. HMRC will assess the circumstances and, if approved, issue a formal exemption.
- Religious objection — write to HMRC explaining the religious grounds. HMRC will review and confirm whether the exemption is granted.
- Insolvency — HMRC is typically notified automatically as part of insolvency proceedings.
| ✔ Tip: Apply for exemptions well in advance of the client's mandation date. Processing times can vary and a client without an exemption decision by their mandation date may be exposed to penalties if they do not file under MTD. |
| How Exemptions Appear in BrightTax |
The MTD Qualifying Income Report in BrightTax shows an Exemption Reason column for each client. Where an exemption has been identified — either because the client is below the threshold or because an HMRC exemption is recorded — the reason will appear here.
Exemptions are not managed within BrightTax itself — they are granted by HMRC and reflected in the client's HMRC records. BrightTax displays exemption information based on what is held in the client's ITR data.
- Go to Reports > MTD Qualifying Income.
- Run the report for the relevant tax year.
- Review the Exemption Reason column for each client.
- Clients showing an exemption reason do not need to be enrolled for MTD for that year.
- If an exemption appears unexpectedly, check the client's ITR data for any entries that may be affecting their qualifying income calculation.
| Clients Below the Threshold |
Clients whose qualifying income is below the current mandation threshold are not required to comply with MTD for ITSA. They do not need to apply for an exemption — they simply continue to file a standard Self Assessment return as normal.
As thresholds reduce over time (from £50,000 to £30,000 and potentially £20,000), review your client base annually using the MTD Qualifying Income Report to identify clients who will be newly mandated in each phase.
| Frequently Asked Questions |
Q: Can a client claim digital exclusion if they simply prefer not to use software?
A: No. Digital exclusion is intended for clients who genuinely cannot use digital tools due to age, disability, or location — not as a preference. HMRC assesses each application individually.
Q: If a client is exempt, do they still need to file a Self Assessment return?
A: Yes. An MTD exemption means the client does not need to file quarterly updates — but they still need to submit an annual Self Assessment return in the normal way.
Q: How long does an MTD exemption last?
A: HMRC exemptions are typically granted for a period or until circumstances change. Confirm the duration with HMRC at the time the exemption is granted.
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