Making Tax Digital for Income Tax (MTD for IT) opt-out

While businesses, landlords and individuals with qualifying income over a threshold are required to follow the rules of Making Tax Digital, there are certain circumstances where opting out could be possible. 

If you think MTD for IT may not be suitable for your circumstances, it’s worth finding out whether you’re able to opt out and manage your taxes using existing methods.

Continue reading this helpful guide on opting out of Making Tax Digital to learn more about your options.

MTD opt-out – In summary

• Opting out of Making Tax Digital is possible only in specific, HMRC-approved circumstances. 

• You must notify HMRC to opt out of the scheme – you cannot simply decide not to follow MTD rules. Doing so can result in penalties.

• You’ll need to provide HMRC with suitable evidence of your reasons for opting out of MTD, such as medical records evidence of being in a remote location without internet access.

What is Making Tax Digital opt-out?

Making Tax Digital is a compulsory scheme for sole traders and landlords with qualifying income above a certain threshold. MTD for VAT is mandatory for all VAT-registered businesses. However, in some cases, you may be able to opt out if it’s deemed reasonable by HMRC for you to do so.  

Can you opt out of Making Tax Digital?

It’s mostly the case that once mandated to follow the rules of Making Tax Digital, opting out isn't an option – unless specific criteria are met. MTD for VAT and MTD for Income Tax have different rules for opting out, so understanding the variances between these two schemes is key.

Opting out of MTD for VAT

MTD for VAT was widely introduced by HMRC in 2022 and made it mandatory for all VAT-registered businesses to keep digital records and submit their VAT returns using MTD-compatible software, regardless of their taxable turnover.

In most cases, it’s not possible to opt out of MTD for VAT unless you:

• Deregister for VAT: If your taxable turnover falls below the VAT deregistration threshold, you can choose to deregister for VAT and you'll no longer be subject to the MTD rules.

• Qualify for an exemption: HMRC can grant exemptions from MTD rules if there are specific circumstances that make it unreasonable for you to use MTD compatible software. Reasons can include age, disability, religious beliefs, being in a remote location where online access is limited, and insolvency. If an exemption is granted, you won't need to abide by MTD for VAT rules.

Learn more about MTD exemptions.

Opting out of MTD for Income Tax

MTD for Income Tax IT is being phased in by HMRC, with eligibility being based on qualifying income thresholds. If your qualifying income falls below the mandatory threshold, particularly for three consecutive tax years, you may be able to opt out.

Here’s a breakdown of the thresholds for MTD for ITSA:

• From 6 April 2026: Qualifying income over £50,000.

• From 6 April 2027: Qualifying income over £30,000.

• From 6 April 2028: Qualifying income over £20,000.

Learn more about MTD thresholds.

Have you voluntarily registered for Making Tax Digital for Income Tax? If so, you should be able to opt out more easily by contacting HMRC. They should permit you to opt out as long as you meet all the required opt-out conditions. 

Commonly accepted reasons for opting out of MTD for IT include:

• Insolvency

• Religious objections

• Digital exclusion 

• It’s deemed impractical for you to use MTD compatible software.

If HMRC grants you the ability to opt out of MTD for IT, you don't need to follow MTD rules.

How to opt out of Making Tax Digital for Income Tax

To opt out of MTD for Income Tax, you’ll need to contact HMRC directly. This is the only way to legally opt out of MTD, failing to do so could result in you receiving a penalty. 

Here are the typical steps for opting out of MTD for ITSA:

• Contact HMRC: Advise individuals to contact HMRC directly to discuss their eligibility and initiate the opt-out process. Call or write to HMRC to discuss your eligibility to opt out and initiate the opt-out process. Find HMRC’s contact details on Self-Assessment: general enquiries.

• Provide evidence: If you’d like to opt out of MTD because your qualifying income falls below the threshold, HMRC will need to review your income history – so you must provide evidence of this. And if you’re opting out due to an exemption, you'll need to provide evidence to support your claim, such as medical certificates for disability, or details of internet access issues.

• Confirmation from HMRC: HMRC will confirm whether you opt-out request has been approved and what you need to do to in future to manage your tax returns. 

Why might you consider opting out of MTD (if eligible)?

There are a few reasons why a business, landlord or individual may prefer to opt out of MTD obligations, if they’re eligible. Here are a few common circumstances where opting out may be necessary, provided your qualifying income is below the threshold:

• Administrative burden: For some, especially if your gross income is relatively low, the quarterly updates and digital record-keeping required for MTD may feel like an increased workload, especially if your business is very small. Opting out could be helpful here, if possible.

• Cost savings: Despite its many benefits, MTD compatible software is an added cost, so opting out can help to save funds.

• Personal circumstances: If you qualify for an exemption due to an impracticality, such as age, disability, or lack of internet access, opting out would give you official permission from HMRC to use traditional methods for record-keeping and tax submissions instead of MTD-compatible software.

It’s worth bearing in mind that even if you’re eligible to opt out of MTD, the software can bring a range of benefits to the way you manage and submit your taxes. MTD compatible software like QuickBooks can improve the accuracy of your records and can help ensure you stay compliant, providing you with better financial oversight, and reducing errors. 

Making Tax Digital opt-out FAQs

How do I know if my qualifying income is low enough to opt out of MTD for ITS?

You’ll know if your qualifying income is low enough to opt out from Making Tax Digital for ITSA by calculating your total gross income from your self-employment and/or property and comparing it to HMRC's thresholds. 

HMRC will check whether you’re under or over their set thresholds to determine whether you’re eligible to opt out.  If your qualifying income falls below the threshold—particularly over three consecutive tax years — you may be eligible to opt out of the scheme. Get in touch with HMRC to confirm your opt out eligibility.

If I opt out of MTD for Income Tax, do I still need to keep digital records?

No, you don't need to use MTD compatible software for your tax submissions if you opt out of MTD. However, you still need to keep accurate records, but you can do so using older methods such as paper or other non-digital systems.  

What if I opted out of Making Tax Digital for IT, but my income increases again?

If your qualifying income rises above HMRC’s threshold after you have opted out of MTD, you’ll become mandated to follow the rules of MTD for ITS once again – so you’ll need to re-register. You’ll then be required to use MTD-compatible software to manage and submit digital tax records. Failing to comply with MTD rules if your qualifying income rises above the thresholds can lead to penalties.

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