Author: Phillips & Co Accountants, Chester
Date: 08 September, 2025
MTD for Income Tax (MTD ITSA) arrives from April 2026 for many sole traders and landlords. But not everyone has to join. Before you buy software or rewire your bookkeeping, check whether you’re out of scope — and what evidence you’ll need.
Quick summary
HMRC will use your latest filed return to compare qualifying income with the £50,000 threshold for 2026/27. Below it? You should be automatically exempt (no application needed).
Several special categories can be exempt or deferred (partnerships for now, qualifying care income, certain overseas cases, trustees/personal reps and more).
Digital exclusion exists — but it’s by application and HMRC guidance on the process is still being finalised.
VAT digital exemptions don’t carry over automatically to MTD ITSA — expect a fresh check.
Qualifying income = gross self-employment + UK property income (before expenses). Partnership income isn’t counted in the qualifying figure, but your separate sole-trade or rental income still is.
The main exemption routes
1) Income below the threshold
HMRC compares qualifying income on your latest filed return to the threshold (for 2026/27, £50,000). If you’re under, you’re automatically exempt for that year.
Action: File your 2024/25 return cleanly and promptly so HMRC has the correct figure.
2) Partnerships (for now)
General partnerships aren’t mandated into MTD ITSA yet.
Caution: If you also run a sole trade or have personal rental income, those sources may still be in scope.
3) Qualifying care/foster care income
Currently automatically exempt.
Caution: Other income streams (sole trade/rentals) can still trigger MTD obligations.
4) Digital exclusion (application needed)
Where it’s not reasonably practicable to keep digital records or submit quarterly (age, disability, location or other reasons).
Action: Prepare to apply and keep evidence; HMRC is expected to confirm the how/when for applications.
Note: Existing MTD for VAT exemptions are not automatic for ITSA — HMRC will re-check.
5) Overseas/non-resident cases
Non-residence alone doesn’t exempt you. Some taxpayers without a NINO may be exempt and certain foreign entertainers have explicit reliefs/deferrals.
Action: We’ll check residency pages, NINO position and any specific deferrals.
6) Other specific categories
Trustees and personal representatives; donors of a lasting/enduring power of attorney; and (under draft rules) Lloyd’s underwriters, ministers of religion, and some allowance recipients. Some of these are time-limited and could change.
What to do before April 2026
Confirm your status
Calculate qualifying income (latest filed return).
List any special categories that might apply to you.
Record evidence for digital exclusion if relevant.
If you’re in scope
Choose compliant software (we recommend Xero) and set up: bank feeds, receipt capture, and sensible coding rules.
Plan your quarterly updates timetable and responsibilities.
Tidy opening balances now so quarters reconcile cleanly.
If you’re out of scope
Keep records as normal.
Recheck annually — your status can change if income or circumstances change.
Sole traders considering going limited
Incorporation doesn’t eliminate obligations entirely; it changes them. If you’re thinking of switching, let’s model take-home and admin before you move.
Frequently asked (quick answers)
Does partnership income count towards the £50k?
No. But your own sole-trade and property income does.
If I’m VAT-exempt digitally, am I automatically exempt for MTD ITSA?
No. Expect a fresh assessment.
Can I claim digital exclusion because I don’t like software?
Preference alone won’t qualify. HMRC looks at reasonable practicability (age, disability, location, or other substantive reasons).
Will rules change again?
MTD is still evolving. We’ll keep clients updated and adjust plans as HMRC publishes the final process.
How Phillips & Co can help (Accountants Chester)
Status check: Are you in or out — with notes you can rely on.
Set-up & training: If in scope, we’ll configure Xero and a simple quarter-end routine.
Quarterly & year-end support: So submissions are on time and accurate.
Plain-English guidance and fixed fees — no surprises.
If you’d like expert guidance, contact Phillips & Co Accountants Chester today.
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Disclaimer
The information contained in this blog is for general guidance only. It does not constitute professional advice and should not be relied upon as such. Always seek tailored advice from a qualified accountant regarding your specific circumstances.