Making Tax Digital (MTD) for Income Tax has been live since 6 April 2026 for individuals with qualifying income above £50,000. For farmers, market gardeners, and creators of literary or artistic works, averaging relief has always offered a potential route to a temporary exemption from MTD obligations, but a critical change to HMRC guidance on 28 May 2026 means the automatic exemption no longer applies to everyone who made such a claim.
Whether your averaging relief claim is enough to keep you outside MTD depends entirely on one thing: which supplementary page you used when filing that claim in your 2024/25 Self Assessment return.
What Is Averaging Relief and Who Can Claim It?
Averaging relief is a long-standing income tax provision that allows farmers, market gardeners, and individuals who personally create literary or artistic works to smooth volatile profits across either two or five consecutive tax years. The purpose is to reduce higher-rate tax exposure in peak profit years by redistributing taxable income more evenly across the period.
The relief is claimed on the Self Assessment tax return using one of two supplementary pages:
- SA103 for individuals reporting self-employment income (sole traders)
- SA104 for partners reporting their share of partnership income
This distinction, which may seem administrative, is now the determining factor in whether your MTD exemption is automatic or requires a separate application.
The MTD Rollout: Are You in Scope?
Before considering the exemption question, it is worth confirming whether MTD applies at all. Qualifying income means gross self-employment income and gross UK property income combined, before expenses.
| Tax Year | MTD Applies From | Income Threshold | Based On |
|---|---|---|---|
| 2026/27 | 6 April 2026 | Over £50,000 | 2024/25 tax return |
| 2027/28 | 6 April 2027 | Over £30,000 | 2025/26 tax return |
| 2028/29 | 6 April 2028 | Over £20,000 | 2026/27 tax return |
Partnership income itself is not qualifying income for MTD purposes. The question at partner level is whether that individual partner holds personal trading or property income in their own name that exceeds the relevant threshold. Where a partner’s personal qualifying income falls below £50,000 for 2024/25, they are not in scope for 2026/27 at all, and no exemption application is needed.
Automatic Exemption: SA103 Individuals
Individuals who claimed averaging relief using the SA103 self-employment supplementary page in their 2024/25 Self Assessment return receive an automatic temporary exemption from MTD for the 2026/27 tax year. No application or contact with HMRC is required. This applies whether the claim relates to farming, market gardening, or the creation of literary or artistic works.
This is a deferral, not a permanent escape. Where qualifying income exceeds £30,000 in the 2025/26 tax year, MTD will apply from 6 April 2027. The exemption simply buys one additional year to prepare
Must Apply: SA104 Partners and Others Without a 2024/25 Claim
On 28 May 2026, HMRC updated its guidance to remove the automatic exemption for partners who claimed averaging relief via the SA104 partnership supplementary page. Those partners must now apply to HMRC separately for an exemption.
The following groups must make a formal application rather than relying on an automatic position:
- Partners who claimed averaging relief on the SA104 in their 2024/25 return
- Individuals who did not claim averaging relief in 2024/25 but reasonably expect to do so in their 2025/26 or 2026/27 tax return
- Partners who expect to claim averaging relief on the SA104 in 2025/26 or 2026/27
| Taxpayer Type | Averaging Relief Position | MTD Exemption Status |
|---|---|---|
| Individual (SA103) | Claimed in 2024/25 | Automatic. No action needed |
| Individual (SA103) | Expects to claim in 2025/26 or 2026/27 | Must apply to HMRC |
| Partner (SA104) | Claimed in 2024/25 | Must apply to HMRC |
| Partner (SA104) | Expects to claim in 2025/26 or 2026/27 | Must apply to HMRC |
| Partner | Personal qualifying income below £50,000 | Not in scope. No action needed |
What Does “Reasonably Expects to Claim” Mean?
The standard is practical rather than prescriptive. A farmer with historically volatile profits, or whose current year results already point toward a significant swing between years, has a reasonable basis for expecting to make an averaging claim. The test is forward-looking and based on the taxpayer’s own informed assessment, not a guarantee that the relief will ultimately be required.
Crucially, this expectation test does not disappear simply because averaging was not needed in 2024/25. Any taxpayer with inherently unpredictable year-on-year income should consider whether the reasonable expectation test applies, even in years where a claim is ultimately not made.
How to Apply and Key Deadlines
Applications for an MTD exemption based on averaging relief are made through GOV.UK using the online exemption application form for MTD for Income Tax. HMRC aims to process applications within 28 days.
The first quarterly update deadline for the 2026/27 tax year is 7 August 2026. Anyone seeking an exemption before that date should apply no later than early July 2026 to allow sufficient processing time.
For 2026/27 only, HMRC will not issue penalty points for missed quarterly update deadlines, providing a soft landing for the first year. However, this soft landing does not remove the obligation to keep digital records or submit quarterly updates, and it does not extend to the Final Declaration, which is due by 31 January 2028.
From 2027/28 onwards, the full points-based penalty regime applies. Each missed quarterly submission accrues one point, and four points triggers a £200 financial penalty with a further £200 for each subsequent missed submission at that threshold.
If You Are in Scope Without an Exemption
A taxpayer who is in scope for MTD and holds neither an automatic exemption nor an approved application must comply with the following obligations for 2026/27:
- Keep digital records for each qualifying income source using MTD-compatible software from the start of the tax year
- Submit quarterly updates to HMRC for each qualifying income source
- File the 2026/27 year-end return through the Final Declaration in MTD-compliant software by 31 January 2028
Once mandated, a taxpayer must remain within MTD for at least three consecutive years before becoming eligible for an income-based exemption. This means a taxpayer joining from April 2026 would not be exempt on income grounds until the 2029/30 tax year at the earliest.
Other MTD Exemptions Beyond Averaging Relief
Averaging relief is one category among several that HMRC recognises for an MTD exemption. Other automatic exemptions include partnerships as entities, individuals with qualifying income of £20,000 or less, those without a National Insurance number, Lloyds underwriting members, Ministers of religion, and recipients of Married Couple’s Allowance or Blind Person’s Allowance.
Those who need to apply include the digitally excluded, individuals expecting to file SA107 (trust income) or SA109 (non-residence, overseas matters) pages, and those claiming qualifying care relief such as foster carers and kinship carers.
How UK Property Tax Accountants Help
Navigating MTD exemptions for averaging relief requires accuracy, particularly in the wake of HMRC’s 28 May 2026 guidance update that caught many partners by surprise. UK Property Tax Accountants provide a structured, step-by-step service to confirm your position and act on it before the first quarterly deadline passes.
The team reviews your 2024/25 Self Assessment return to identify which supplementary page carries your averaging relief claim and confirms whether your personal qualifying income brings you within scope for MTD in 2026/27. Where an application is needed, UK Property Tax Accountants prepare and submit it on your behalf, monitoring the 28-day processing window to ensure confirmation arrives before the 7 August 2026 quarterly deadline.
For clients already mandated into MTD, the firm assists with software selection, digital record-keeping setup, quarterly update submissions, and the Final Declaration, removing the administrative burden while ensuring full compliance. Where penalty points or penalties have already accrued, the team can assess reasonable excuse grounds and manage any appeal. The combination of technical tax expertise and practical MTD systems knowledge means clients avoid both the compliance risk of an incorrect assumption and the cost of late penalties.
Frequently Asked Questions
Does averaging relief reduce my total tax liability permanently?
No. Averaging relief does not reduce total taxable profits. It redistributes them across two or five tax years to smooth income tax exposure, which can reduce higher-rate tax in peak years. The total taxable profit across the averaged period remains unchanged.
I claimed averaging relief on my SA103 in 2024/25. Do I need to do anything for MTD?
No. You are automatically exempt from MTD for the 2026/27 tax year and do not need to contact or apply to HMRC. The exemption is temporary and MTD will apply from 2027/28 if your qualifying income exceeds £30,000 in 2025/26.
I claimed averaging relief on my SA104 as a partner. Am I automatically exempt?
No. Following HMRC’s guidance update on 28 May 2026, partners who claimed on the SA104 page must apply separately for an MTD exemption. The automatic route is no longer available to them.
I did not claim averaging relief in 2024/25 but expect to in a future year. What do I do?
You must apply to HMRC for a temporary exemption if you reasonably expect to make an averaging relief claim in your 2025/26 or 2026/27 tax return. This applies to both individuals filing via SA103 and partners filing via SA104.
What happens if my exemption application is not approved in time for the 7 August quarterly deadline?
You will be treated as in scope for MTD for 2026/27. While HMRC will not issue penalty points for missed quarterly updates during the 2026/27 soft landing, the obligation to keep digital records and submit quarterly updates still applies from the start of the year.
