HMRC rejects almost half of tax exemptions

HMRC has declined nearly half of the applications from taxpayers seeking exemption from the Making Tax Digital (MTD) for Income Tax initiative.

According to data obtained via a Freedom of Information request by Saffery, over 1,600 individuals applied for exemption on the grounds of “digital exclusion” as of February 2026. Of these, 855 applications were approved, resulting in a 47% refusal rate.

This information precedes the first phase of the government’s long-delayed digital tax overhaul, set to commence in April. Taxpayers may apply for exemption if they cannot use digital tools due to reasons such as age, disability, health conditions, or religious beliefs. Those granted an exemption can continue filing traditional Self Assessment returns. A detailed breakdown of successful applications reveals that 360 exemptions were granted for age or health-related reasons, 323 for digital capability, 150 for disability, and 22 for other reasons.

Most approved exemptions, totalling 759 cases, pertain to taxpayers entering the system in April 2026, with fewer linked to later phases of the rollout. Under the new regulations, individuals earning over £50,000 from self-employment or property must maintain digital records and submit quarterly updates to HMRC starting in April. The threshold will decrease to £30,000 in 2027 and £20,000 in 2028.

Zena Hanks, a partner at Saffery, noted that the figures indicate HMRC is granting exemptions only to those with the most clear-cut cases of digital exclusion, despite the difficulty in defining and evidencing digital exclusion. She anticipates a sharp increase in applications as awareness of the deadline grows.

“Given these numbers were recorded in mid-February, with the first phase of the roll-out approaching in April, the number of people applying for exemptions will almost certainly have increased significantly in the weeks since,” Hanks stated.

HMRC maintains that the transition to digital reporting will ultimately simplify the tax system, reducing errors and administrative burdens over time. Hanks suggested that the high rejection rate might be due to many cases of digital exclusion being potentially addressable with support. “In many cases, digital exclusion should be possible to overcome with the right support, training, or guidance,” she said. “While Making Tax Digital is intended to modernise the tax system, these figures suggest there is still a substantial group of taxpayers who may find the transition challenging.”

The findings emerge amid broader concerns about readiness for the new regime. Many landlords and sole traders remain unprepared, with some still using paper records or basic spreadsheets that do not meet HMRC’s requirements. Banks and software providers have begun deploying tools to facilitate the transition. HSBC recently introduced a digital tax service within its business banking platform, while accounting firms have intensified efforts to guide clients through the changes.