HMRC clarifies MTD exemption position for averaging relief claims

HMRC has issued updated guidance on the interaction between Making Tax Digital (MTD) for Income Tax and claims for averaging relief, providing important clarification for partners in farming or creative partnerships.

Sole traders who claimed averaging relief as farmers, market gardeners or creative artists on the SA103 supplementary pages of their 2024/25 tax return will be automatically exempt from MTD for the 2026/27 tax year, with no separate application required.

Under the revised guidance, partners who claimed averaging relief in their 2024/25 tax return using the SA104 partnership pages will not qualify for an automatic exemption from MTD. In this situation, they should contact HMRC and apply for an exemption. This application can be made in writing or by telephoning the HMRC MTD helpline. Appointed agents may make the claim on behalf of their clients.

Both sole traders and partners who did not claim averaging relief in their 2024/25 return but reasonably expect to do so in 2025/26 or 2026/27 will also need to apply for an MTD exemption for 2026/27.

Interaction with MTD entry criteria

Importantly, partners should note that partnership income is not qualifying income for the purposes of MTD. A partner will only be required to join MTD if they have separate sole trader and/or property income that exceeds the relevant MTD income threshold. This means that, in many cases, partners claiming averaging relief via SA104 may not be mandated into MTD at all unless they also have qualifying non-partnership income streams that trigger the obligation.

Practical implications

If a partner, who had averaged in 2024/25, attempts to register for MTD before being granted the exemption, they will not receive the message confirming that they are exempt for MTD for 2026/27. They may then continue to register in error. Agents may wish to check that their clients have not registered in error and contact HMRC to rectify the situation, if applicable.

Action for agents:

·  Identify clients who claimed averaging relief in 2024/25 or likely to do so in 2025/26 or 2026/27 

·  Check whether they are sole traders or partners 

·  Review whether partners have other qualifying income 

·  Consider whether an exemption application is required 

·  Ensure clients have not registered for MTD in error

Further information

HMRC’s updated guidance on eligibility for MTD exemptions, including specific references to averaging relief, is available here. ATT’s technical guidance on exemptions is available here.

The information presented on this page represents the ATT’s understanding based on the information available at the date of publication shown. You may wish to check against available legislation and any official guidance on GOV.UK that that position has not changed.