If you claimed MTD averaging relief on your 2024/25 Self Assessment Tax Return and assumed that took you outside Making Tax Digital (MTD) for Income Tax, you need to check again. HMRC has changed its guidance. Now, an individual who claimed the relief on the SA103 self-employment page is still automatically deferred from MTD for 2026/27. However, a partner who claimed it on the SA104 partnership page is not. They must separately apply to HMRC for the exemption.
This matters most if you let property and also farm, create artistic works, or hold a partnership interest. Your combined income can pull you into MTD even when you believed a relief had taken you out.
This article explains what has changed with the averaging relief, who is affected, and what to do now. It does not walk through how averaging relief is calculated, if that is your question, speak to an expert directly rather than reading on.
Key Takeaways
- HMRC's updated guidance, issued on 28 May, removed the automatic MTD exemption for partners who claimed averaging relief on the SA104 page; they must now apply separately
- Individuals who claimed averaging relief on the SA103 page are unaffected and remain automatically deferred for MTD for 2026/27
- You must also apply separately, rather than assume, if you expect to claim MTD averaging relief in your 2025/26 or 2026/27 Self Assessment Tax Return
- MTD averaging relief only defers MTD for Income Tax by a year; it does not remove MTD obligations entirely
- MTD for Income Tax has been live for landlords and sole traders with qualifying income over £50,000 since 6 April 2026
What Exactly Changed With MTD Averaging Relief?
Until late May 2026, HMRC's guidance treated anyone who claimed averaging relief on either the SA103 or the SA104 supplementary pages as automatically outside MTD for Income Tax for the 2026/27 tax year.
However, on 28 May 2026, HMRC updated that guidance. The automatic exemption now applies only to individuals who claimed on the SA103 self-employment page. Partners who claimed on the SA104 partnership page must separately apply for the exemption.
This change landed seven weeks after MTD went live on 6 April 2026, so an affected partner may already be within the Making Tax Digital regime without realising it.
Your MTD Averaging Relief Claim | Old Position | New Position |
|---|---|---|
SA103 - Individual (Self-Employment) | MTD automatically deferred for 2026/27 | Unchanged, MTD remains deferred |
SA104 - Partner (Partnership) | Automatically MTD exempt | Not automatic, you must separately apply to HMRC |
Why You May No Longer Be Exempt
Averaging relief has never been about exempting anyone from MTD’s requirements forever. It only delayed entry into MTD by one year, and now that delay no longer automatically applies to everyone.
If you claimed MTD averaging relief on the SA104 partnership pages, you are no longer automatically deferred from Making Tax Digital for 2026/27. You must now apply separately to HMRC to receive that deferral. If you claimed on the SA103 self-employment pages, nothing has changed, you remain deferred.
Averaging relief is designed for people with variable profits, such as farmers, market gardeners, and creators of literary or artistic works, as has been described in detail in the Income Tax (Trading and Other Income) Act 2005 (ss. 221-225). It allows income to be smoothed over multiple tax years (two-year averaging is open to farmers, market gardeners, and those who personally create literary or artistic works; five-year averaging is open to farmers and market gardeners only) to delay a taxpayer’s entry into the MTD regime by one year. But it does not override MTD thresholds or remove ongoing obligations.
For partners, MTD is not triggered by their partnership share alone. Instead, HMRC looks at the individual’s total qualifying income from sources such as sole trade or property letting. This is why the change matters. Even though partnership income itself is not yet within MTD, a partner can still be brought into the regime through their own separate income.
Previously, an SA104 averaging relief claim would automatically defer that position. Under the updated rules, that is no longer the case; the deferral only applies if a separate application is made to HMRC.
Worked Example: A Landlord-Farmer Who Assumed MTD Exemption Through Averaging Relief
Priya lets two residential properties in her own name and is a partner in a family farming partnership. Her 2024/25 figures were £46,000 gross rental income and £9,000 from a small sole-trade consultancy, i.e., £55,000 of qualifying income. Meanwhile, the partnership claimed a two-year averaging relief on its SA104 pages.
This puts her in the following MTD position:
Area | Old Position (Before 28 May 2026 Guidance) | New Position (From 28 May 2026) | If Priya Does Nothing |
|---|---|---|---|
SA104 Averaging Relief Claim (Partnership) | Automatically deferred MTD for 2026/27 | No automatic deferral, separate HMRC application required | No protection from SA104 claim |
MTD Status Based on £55,000 Qualifying Income | Treated as outside MTD due to automatic deferral | In scope of MTD from 6 April 2026 | Already within MTD regime |
Outcome for 2026/27 | No MTD obligations | Must apply to confirm deferral; otherwise enters MTD | Missed quarterly deadlines |
Under the old guidance, Priya could rely on the SA104 averaging relief claim to keep her outside MTD for 2026/27. But now, unless she actively applies to HMRC for an MTD exemption, she is treated as within MTD from the start of the 2026/27 tax year based on her qualifying income.
If your situation is similar to Priya’s, this is one of those cases where a quick review is essential. The difference between an automatic deferral and a missed application can change your MTD status immediately.
Are You Within MTD for Income Tax?
MTD Begins From | Qualifying Income Threshold | Determined By the Self Assessment Tax Return for | Status |
|---|---|---|---|
6 April 2026 | Over £50,000 | Tax Year 2024/25 | In Force Now |
6 April 2027 | Over £30,000 | Tax Year 2025/26 | Upcoming |
6 April 2028 | Over £20,000 | Tax Year 2026/27 | Upcoming |
The thresholds above sound straightforward, but many taxpayers are caught out by the details. Qualifying income is not the same as taxable profit, and special rules can apply if you have multiple income sources, averaging relief claims, jointly owned property, or partnership interests.
If you're unsure whether you fall within MTD for Income Tax, it's worth checking before your first filing deadline arrives. A quick calculation today can prevent missed quarterly updates, late submission penalties, and unnecessary compliance costs later.
Conclusion: What Should You Do Now?
Start with one question – what was my qualifying income on my 2024/25 Self Assessment Tax Return? If it was over £50,000, you are in scope for 2026/27 – and that scope has applied since 6 April 2026.
Next, check whether you claimed averaging relief and on which page. If you are an SA104 partner, you must make a separate application to HMRC to get an MTD exemption; the automatic route is no longer open to you.
Until an exemption is granted, keep digital records and plan to submit your first quarterly update by 7 August 2026. HMRC has confirmed a soft landing for 2026/27, but that does not remove the duty to file, the duty to keep digital records from 6 April 2026, or any late-payment consequences.
Need MTD Done Properly?
At UK Property Accountants, our experts confirm whether you are in scope for MTD for Income Tax, check your exemption position, handle the HMRC application where one is needed, and set you up with the ideal MTD software so that you are perfectly compliant by 7 August!
FAQs
MTD averaging relief is a one-year deferral from Making Tax Digital (MTD) for Income Tax that can apply when a taxpayer claims profit averaging relief. It is relevant to farmers, market gardeners, and individuals who personally create literary or artistic works and make a qualifying averaging relief claim.
If you qualify for averaging relief and are eligible for an MTD deferral, it is generally worth claiming because it can postpone your MTD obligations by one tax year.
No. Averaging relief only defers MTD for Income Tax by one year. Once that period ends, HMRC reassesses your position based on your qualifying income and you may still need to join MTD if you exceed the relevant threshold.
No. Partnership income does not currently count towards the MTD income threshold because MTD for Income Tax has not yet been extended to partnerships. HMRC instead looks at your qualifying sole-trade and property income when determining whether you fall within MTD.
You must either call or write to HMRC and apply for the MTD deferral. HMRC has confirmed that, from 28 May 2026, SA104 averaging relief claims no longer qualify for an automatic deferral from MTD for Income Tax.
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