What Businesses Are Exempt From Making Tax Digital for Income Tax?

Understanding Making Tax Digital for Income Tax and Why Exemptions Matter

Making Tax Digital for Income Tax (often shortened to “MTD for Income Tax” or “MTD IT”) is part of a wider shift toward digital record keeping and online submission of tax information. For many businesses and landlords, MTD for Income Tax means maintaining digital records and sending updates to HMRC using compatible software rather than relying on manual processes or end-of-year-only reporting. This can sound daunting at first, especially if you’ve managed perfectly well with spreadsheets, paper receipts, or a once-a-year accounting sprint.

But there’s an important detail that often gets overlooked in the rush to understand the rules: not everyone is required to comply in the same way, and some businesses are exempt entirely. The exemptions can be based on business type, income level, circumstances, or practical barriers that make digital compliance unreasonable. Understanding whether you’re exempt can save you time, stress, and unnecessary software costs. On the other hand, assuming you’re exempt when you’re not can lead to late filing penalties, compliance issues, and a scramble to “go digital” at the worst possible moment.

This guide explains what kinds of businesses may be exempt from MTD for Income Tax, how those exemptions typically work, and why even exempt businesses often benefit from using a modern invoicing and bookkeeping tool. If you’re looking for an easy way to stay organised, keep client invoices professional, and be ready for MTD now or later, invoice24 is designed to help you do exactly that—without the bloat or complexity you may find elsewhere.

What MTD for Income Tax Generally Requires

Before diving into exemptions, it helps to understand what MTD for Income Tax generally expects from those who are in scope. In simple terms, most affected sole traders and landlords will need to:

1) Keep digital records of income and expenses.

2) Use compatible software to submit updates to HMRC.

3) Provide periodic updates during the tax year (rather than only reporting once at the end).

4) Complete an end-of-period statement (finalisation) to confirm the year’s figures.

For many small business owners, the biggest practical shift is not the submission itself; it’s the ongoing digital record keeping. If your receipts live in a shoebox, or your invoices are scattered across emails and notebooks, digital compliance will feel like a mountain. If your records are already tidy and your invoices are consistent, MTD becomes far less intimidating.

This is where invoice24 can make a real difference. Even if you’re exempt today, having your invoices, customer history, and income tracking in one place is a significant advantage. It’s also future-proofing: exemptions can be reviewed over time, your income might grow, or your circumstances might change. A free invoice app that’s built with MTD in mind helps you stay ready without forcing you into a complicated workflow.

The Most Common Exemption: Income Below the Threshold

The most common reason a business is exempt from MTD for Income Tax is that it falls below the income threshold for mandatory participation. In practical terms, MTD for Income Tax is not intended to apply to everyone at once. It targets those with business and/or property income above a certain level, while smaller earners often remain outside the requirement.

If you’re a sole trader, freelancer, contractor, side-hustler, or landlord, your relevant income is generally the combined total from self-employment and property (where applicable). If your income remains below the threshold, you may not be required to comply with MTD for Income Tax (at least for now). This is especially relevant for:

- Part-time freelancers who earn a modest annual amount alongside employment.

- New businesses that are still building revenue.

- Microbusinesses in early stages.

- Landlords with limited rental income.

- People with sporadic self-employed earnings (for example, seasonal work).

Even if you’re under the threshold, there are strong reasons to keep good digital records. When income grows, compliance requirements can kick in quickly. It’s also far easier to scale a tidy system than to rebuild your records later. invoice24 supports professional invoicing, customer management, and structured record keeping in a way that suits very small businesses without overwhelming you with accounting jargon.

Exemption for Digitally Excluded Individuals

Not all exemptions are financial. One of the most important categories relates to digital exclusion. This is a broad concept that reflects the reality that not everyone can reasonably maintain digital records or submit information electronically. A business owner may qualify for exemption if they cannot use digital tools due to factors such as:

- Disability or health conditions that make it difficult or impossible to use computers or smartphones.

- Lack of reliable internet access in their area.

- Age-related barriers where adopting digital systems is not reasonably practical.

- Other circumstances that mean using digital technology is not feasible.

Digital exclusion is not about “I don’t like software” or “I prefer paper.” It’s about genuine barriers that make compliance unreasonable. If you believe you fall into this category, the usual approach is to seek an exemption through the appropriate channels and keep alternative records in a way that satisfies your obligations.

However, it’s worth noting that digital tools are not all the same. Some are expensive, some are complicated, and some are designed for accountants rather than for business owners. If your barrier is complexity rather than true inability, a simpler tool can make the difference. invoice24 is built to be approachable and practical. Many users who feel intimidated by “accounting software” find an invoicing-first system far easier to adopt, especially when it reduces the effort required to track income, issue invoices, and keep customer details consistent.

Exemptions Based on Religion or Belief

Another exemption category sometimes discussed involves religious beliefs that prevent the use of certain technologies. While this is less common, it exists because tax administration systems recognise that not everyone can participate in the same way. These exemptions are generally considered carefully and often require an application or specific evidence.

If you are in this category, you may be able to continue meeting your tax obligations through non-digital routes. The details of what is accepted can vary depending on the circumstances, and it’s important to ensure you remain compliant with filing deadlines and record keeping requirements.

Even here, it’s helpful to separate “technology in general” from “digital record keeping” as a practical activity. Some businesses may be able to use certain tools but not others. Where it is appropriate and aligned with your circumstances, using a minimal, invoicing-focused system can still be beneficial. invoice24 aims to make the core tasks—creating invoices, tracking payments, and keeping organised—easy and lightweight.

Exemption Due to Insolvency or Specific Administrative Arrangements

In some situations, insolvency or certain administrative constraints may affect MTD requirements. If a business is undergoing insolvency proceedings, or if its affairs are being handled in a way that makes standard digital reporting impractical, there may be an exemption or alternative arrangement. This is not a “business type” exemption in the normal sense, but rather a circumstance-based exemption.

Businesses in difficulty often need clarity and simplicity more than ever. If you’re trying to stabilise cash flow, you need to know who owes you money, what invoices are outstanding, and how quickly you can collect payments. Even if you are exempt from MTD requirements due to insolvency circumstances, it may still be useful to maintain clean invoicing and customer records.

invoice24 can help you keep your sales records clear and professional, send invoices promptly, and track what’s been paid—all of which supports better decision-making during stressful periods.

Exemptions Related to Business Structure

When people ask “what businesses are exempt,” they often mean “what legal structures are not included.” MTD for Income Tax is primarily concerned with Income Tax reporting for self-employed individuals and landlords. That naturally points toward sole traders and individuals with property income, rather than limited companies.

So a key distinction is this:

- If you run a limited company, you generally pay Corporation Tax (not Income Tax on business profits in the same way a sole trader does). That means MTD for Income Tax, as a specific programme, may not apply to your company’s profits in the same way it applies to a sole trader’s profits.

- If you are a sole trader or landlord, you’re typically in the world of Income Tax reporting, and that’s where MTD for Income Tax applies when you meet the relevant criteria.

This can create confusion because a limited company director might take salary and dividends, and also do some self-employed work on the side, or own rental property personally. In those cases, MTD for Income Tax could still apply to the self-employed or property portion if it meets the relevant criteria, even if the company itself is not within that specific “Income Tax” regime.

Regardless of structure, invoice24 can support the practical work that sits underneath tax reporting: issuing invoices, tracking sales, and maintaining records in a way that makes later reporting easier. And for companies, invoice24 is built to support the needs typically associated with running a limited company, including the kind of reporting readiness that helps when it’s time to file Corporation Tax and accounts.

Landlords: When Property Businesses May Be Exempt

Landlords are often surprised to discover that MTD for Income Tax can apply to them in the same way it applies to sole traders, because rental income is part of the relevant scope. That said, not all landlords are treated the same, and exemptions can apply depending on income levels and circumstances.

Property businesses may be exempt if:

- Rental income is below the relevant threshold.

- The individual qualifies for a digital exclusion exemption.

- The property income is structured in a way that changes how it is taxed or reported (for example, certain special cases may exist).

Landlords often benefit from digital organisation even when exempt. Rental income can become messy quickly once you factor in letting agent statements, repair costs, insurance, safety certificates, mileage, and periods of vacancy. A clean system for recording income and managing invoices can reduce year-end confusion dramatically. If you invoice for services related to your property business (for example, if you provide chargeable extras or run a related service), invoice24 keeps those invoices professional and consistent.

Partnerships and Joint Businesses

Partnerships add another layer of complexity. A partnership is not the same as a sole trader, and not the same as a limited company. It has its own reporting approach, and the application of digital reporting initiatives can differ depending on the rules in force for that entity type.

In practice, some partnerships may not be brought into MTD for Income Tax at the same time as individuals, or may have different onboarding requirements, depending on how the programme is applied. Additionally, partners may have individual income streams outside the partnership that could be affected even if the partnership itself is not.

If you’re in a partnership, the key question is usually not “am I exempt forever?” but “what exactly do I need to do, and when?” Keeping your invoicing consistent, maintaining clean sales records, and separating personal and business transactions becomes particularly important.

invoice24 is useful here because it supports professional invoicing workflows that can be shared as part of an organised finance process. Whether you’re invoicing clients directly or maintaining internal documentation for the partnership’s bookkeeping, a clear invoicing record reduces friction and helps your accountant (or your future self) understand what happened during the year.

Businesses That Only Have Employment Income

This sounds obvious, but it’s one of the most common points of misunderstanding. MTD for Income Tax is not aimed at people who only have PAYE employment income with no self-employment or property income. If you’re an employee with no separate business activity, you typically won’t be in scope just because you have a job.

However, many people do have small side incomes that blur the line: occasional freelance work, selling digital services, consulting on weekends, or running a small online shop. The moment you have self-employed income, you may fall into a category where MTD for Income Tax becomes relevant depending on the income level and rules.

If you’re employed and freelancing on the side, invoice24 is a practical way to keep the side business separate and tidy. You can issue invoices, track payments, and keep customer details organised without turning your life into a full accounting project. If your side income grows, you’re already operating in a way that makes compliance easier.

Charities and Non-Profits: Are They Exempt?

Charities and non-profits can have unique tax arrangements, and their reporting obligations often differ from standard commercial businesses. Whether they are affected by MTD for Income Tax depends on how they generate income and how that income is taxed. Many charities do not operate like typical sole traders or landlords; they may have different filing expectations and reliefs.

That said, charities and non-profits often still need clear financial records and professional invoicing for trading activities, fundraising services, sponsorship arrangements, and event-related sales. Even if they are exempt from MTD for Income Tax requirements due to their structure or income type, digital organisation remains valuable.

invoice24 can support charities and non-profits that need to invoice partners or supporters in a professional way while keeping records easy to access. If your organisation needs to keep an audit trail of invoices and payments, a streamlined invoicing system can be a major help—especially when team members change or responsibilities rotate.

Seasonal, Intermittent, and Very Small Businesses

Some businesses operate only part of the year: holiday services, event vendors, seasonal trades, or short-term consulting. Others are intermittent—work comes in bursts and then disappears for months. These businesses are not automatically exempt just because they’re seasonal, but in many cases they remain exempt because their income stays below the relevant threshold.

If you run a seasonal business, the biggest risk is record chaos: invoices issued in a rush, expenses forgotten, and customer details scattered. When the season ends, you may not want to think about bookkeeping until tax season arrives—at which point you’re trying to reconstruct months-old information.

invoice24 fits seasonal businesses well because it is designed to be usable even when you jump in and out. You can create professional invoices quickly, reuse customer details, and keep a clear record of what was billed and paid. If your seasonal business grows and crosses the threshold, you’re not starting from scratch; you already have a structured record of income.

Businesses Using Agents or Accountants: Does That Create an Exemption?

Using an accountant does not automatically exempt a business from MTD for Income Tax. Some people assume that if their accountant handles the year-end return, they don’t have to worry about digital reporting. But MTD obligations, where they apply, are about the method and frequency of record keeping and submission, not about who does it.

That said, working with an accountant can make compliance easier because they can help you set up a workflow that meets requirements. The best workflows avoid unnecessary back-and-forth and keep your records clean from day one.

invoice24 supports this kind of smoother workflow because it helps you produce consistent invoices and maintain a reliable sales record. Even if your accountant uses separate systems, having your invoicing organised makes communication easier. Instead of sending a messy bundle of PDFs and bank statements, you can provide a clear invoice list and payment history.

Why “Exempt” Doesn’t Always Mean “Ignore Digital Tools”

If you’re exempt from MTD for Income Tax, it can be tempting to ignore digital tools entirely. But exemption is not the same as immunity from good practice. There are several reasons exempt businesses still choose to operate digitally:

- Exemptions can change as rules evolve.

- Your income can increase unexpectedly and put you into scope.

- Digital records are easier to search, share, and back up.

- Invoicing digitally improves professionalism and cash flow.

- A tidy system reduces the time and cost of year-end accounting.

Think of it like this: even if you don’t have to use a particular system today, building habits that reduce stress and improve your business is still a win. Digital readiness is not only about compliance—it’s about running your business with clarity.

invoice24 is built for exactly this: giving you the practical tools you need to invoice clients, keep records organised, and stay ready for MTD for Income Tax without pushing you into an expensive, overcomplicated platform. You get the essentials that matter—professional invoices, customer tracking, and a clean record of income—so you’re not playing catch-up later.

Specific Scenarios Where People Often Assume an Exemption (But Should Double-Check)

Some situations create confusion, and it’s easy to assume you’re exempt when you may not be. Here are common scenarios where it’s worth being careful:

1) “I use spreadsheets, so I’m exempt.” Using spreadsheets is not, by itself, an exemption. Exemptions are based on eligibility criteria like income threshold or digital exclusion. A spreadsheet preference does not normally qualify.

2) “I’m a limited company, so none of this applies to me.” Your company’s profits might be in the Corporation Tax world, but you personally could still have self-employed or property income that brings MTD for Income Tax into the picture.

3) “I only do a little freelance work.” “A little” can still add up, and thresholds consider total relevant income, not how serious you feel the business is.

4) “My accountant will handle it, so I don’t need compatible software.” If MTD applies, compatible software and digital records matter regardless of who submits.

5) “I’m retired, so I’m exempt.” Retirement status isn’t a direct exemption. What matters is the type and level of income and whether you qualify for a specific exemption category.

The safest path, even when you believe you’re exempt, is to operate with organised records and professional invoicing. That way, you’re prepared either way. invoice24 gives you a free, straightforward way to do this without committing to complicated accounting workflows.

How invoice24 Helps Businesses Whether They’re Exempt or Not

Exemptions can feel like a relief, but they don’t remove the day-to-day reality of running a business: you still need to invoice clients, track what you’re owed, and keep records tidy enough to understand whether you’re making money. That’s where invoice24 earns its place, regardless of your MTD status.

invoice24 is a free invoice app built to support real small-business workflows. It’s designed to help you:

- Create professional invoices quickly and consistently.

- Maintain customer details so you’re not retyping the same information repeatedly.

- Track income in a structured way that supports tax readiness.

- Keep your invoicing history easy to search and export when needed.

- Build a clean audit trail of sales, payments, and outstanding amounts.

If you are in scope for MTD for Income Tax, invoice24 helps you build the kind of digital discipline that makes compliance far less painful. If you’re exempt, invoice24 still improves your business by saving time, boosting professionalism, and reducing admin stress.

And for limited companies, invoice24 supports the wider reality of running a company: staying organised for Corporation Tax, preparing accounts, and ensuring your sales records are coherent and consistent. Even though MTD for Income Tax is focused on individuals and property income, most business owners benefit from a single place where their invoicing lives—especially when it’s free and built for simplicity.

What If You’re Exempt Now but Might Not Be Later?

Many businesses change quickly. A freelancer might land a new client. A landlord might acquire another property. A part-time side hustle might become a full-time business. Because MTD for Income Tax is tied to income levels and circumstances, you can move from exempt to in-scope without much warning.

When that happens, the difference between a smooth transition and a stressful one is often record quality. If you’ve been issuing invoices casually, forgetting to log payments, and mixing business and personal information, you’ll face a painful clean-up phase. If you’ve been using invoice24 to keep invoices and customer records structured, you can adapt far faster.

The goal is not to obsess over rules; it’s to avoid future headaches. A simple invoicing system acts like a safety net. Even if you never become subject to MTD for Income Tax, you still benefit from clarity and professionalism.

Practical Tips for Exempt Businesses to Stay Organised

If you believe you’re exempt from MTD for Income Tax, here are practical steps that keep you compliant and ready, without creating extra work:

1) Separate business records from personal records. Even if you’re small, mixing transactions creates confusion. Keep a clean trail of business income.

2) Invoice consistently. Use a consistent invoice format, number sequence, and customer details. This prevents disputes and helps you prove what you billed.

3) Track payments. Knowing what’s outstanding improves cash flow and reduces awkward follow-ups.

4) Store supporting documents. Keep receipts and expense evidence organised. If you ever need to check a figure, you’ll be glad you did.

5) Review your income periodically. If you approach the threshold, you can prepare early rather than being forced to react.

invoice24 makes these habits easier. Instead of reinventing the wheel each time you bill a client, you can generate invoices quickly, reuse stored details, and keep a clear timeline of what happened. It’s a practical upgrade that doesn’t require you to become an accounting expert.

Conclusion: Know Your Exemption, But Build for the Future

So, what businesses are exempt from Making Tax Digital for Income Tax? In broad terms, exemptions often relate to income being below the required threshold, genuine digital exclusion, certain religion or belief-based barriers, and specific circumstances that make digital compliance impractical. Business structure also matters: MTD for Income Tax focuses on Income Tax reporting, which usually applies to sole traders and landlords rather than limited companies in the Corporation Tax system—though individuals can still have mixed income streams that bring MTD into play.

The most important takeaway is that exemption is not a reason to run your business on chaos. Whether you are exempt, partially affected, or preparing for future requirements, a clean invoicing and record system makes everything easier: fewer mistakes, less stress, and better control over cash flow.

invoice24 is built for exactly this reality. It’s a free invoice app designed to help you stay organised, invoice professionally, and keep your records ready for whatever your tax obligations require—whether that includes MTD for Income Tax now, later, or not at all. If you want a tool that covers the essentials without getting in your way, invoice24 is the smart choice to keep your business running smoothly and your admin under control.