HMRC has begun sending a final batch of awareness letters to taxpayers, and we provide an update on averaging relief in the context of Making Tax Digital (MTD) for Income Tax exemptions.
HMRC has advised that a final awareness letter is being issued to taxpayers mandated in the over £50,000 income cohort. This final round is being sent to taxpayers who either filed their 2024/25 tax return after 31 January, or amended a previously filed return bringing them into scope of MTD for Income Tax from April 2026.
Consistent with earlier awareness activity, the letter explains that taxpayers need to use MTD for Income Tax because their total income from self-employment and property was over £50,000 in their 2024/25 return. It also signposts the guidance and information needed to prepare.
The dispatch of this final round of letters has now started, with taxpayers expected to receive them imminently. Taxpayers have been encouraged to share this letter with their agent where appropriate.
Guidance on averaging relief
HMRC has recently changed its guidance on claiming averaging relief which means that in 2024/25 such individuals may not automatically be exempt from MTD for Income Tax in 2026/27.
The making of a claim for averaging relief is one of the circumstances in which an exemption may apply from MTD income tax for 2026/27.
If an individual made a claim for averaging relief via the SA103 in 2024/25, they are automatically exempt from MTD income tax for 2026/27. If this was not the case, and the individual reasonably expects to make a claim for averaging relief in 2025/26 or 2026/27, they must instead apply to HMRC for exemption.
Note that although MTD for Income Tax does not apply to partnerships, a partner will be within scope if their individual total gross qualifying income from sole trades and property businesses exceeded £50,000 in 2024/25.
HMRC’s updated guidance says that if a partner claimed averaging relief using the SA104 in 2024/25, they are not automatically exempt from MTD income tax for 2026/27 and must apply to HMRC for exemption. Previously, this guidance stated that such individual partners would be automatically exempt. A partner must again apply for exemption if they reasonably expect to make a claim for averaging relief in 2025/26 or 2026/27.
Further information is available in the following guidance:
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