MTD reminders and creative averaging: don’t panic if HMRC says you need to file

If you’re an author who has applied for a temporary exemption from Making Tax Digital for Income Tax because you may claim creative averaging, you might reasonably assume that HMRC would stop sending you reminders to submit quarterly updates.

Unfortunately, that doesn’t necessarily seem to be happening.

We’ve seen cases where clients have applied for the exemption but are still receiving HMRC reminders telling them that their first MTD quarterly update is due.

So what should you do?

First, a quick reminder about the exemption

Making Tax Digital for Income Tax started in April 2026 for sole traders and landlords with qualifying income over £50,000.

However, there are a number of temporary exemptions.

One of these is particularly important for authors and other creators. If you claimed creative averaging on your 2024/25 tax return, you should normally be automatically exempt from MTD for the 2026/27 tax year.

There is also an exemption for people who did not claim averaging on their 2024/25 return but reasonably expect to make an averaging claim for either 2025/26 or 2026/27. In that situation, you need to apply to HMRC for the exemption.

The exemption lasts for the 2026/27 tax year. If your qualifying income is above £30,000 for 2025/26, you would currently be expected to enter MTD from April 2027.

Why does creative averaging matter?

Creative averaging is a valuable tax relief available to authors and certain other creators whose profits can fluctuate significantly from one year to another.

Broadly, it allows the profits of two consecutive years to be averaged, potentially reducing the tax cost where one year has been particularly profitable and the other considerably less so.

For an author whose income can vary dramatically depending on advances, royalties, publication dates and the success of individual books, it can make a significant difference.

And this is where MTD creates a problem.

HMRC has specifically recognised that people who claim, or reasonably expect to claim, averaging need a temporary exemption from MTD. That is why the exemption exists.

What if HMRC is still sending you MTD reminders?

This is the slightly frustrating part.

We have clients who have applied for the temporary exemption but are nevertheless receiving HMRC reminders telling them that an MTD quarterly update is due.

When we speak to HMRC, they can see that an exemption has been applied for. What has been less clear is why the MTD system is continuing to issue reminders while those applications are being dealt with.

MTD for Income Tax is brand new, so at the moment there are inevitably some rough edges between the rules, HMRC’s systems and the correspondence being generated by those systems.

Our view is that receiving an automated reminder does not, by itself, mean you should submit an MTD quarterly update if you have applied for an exemption because you reasonably expect to claim creative averaging.

In fact, we would be cautious about doing so.

Why we wouldn’t simply file the quarterly update

There is an understandable temptation to think: “HMRC says it’s due, so I’ll just file it to be safe.”

We don’t think that’s necessarily the safest approach.

If you’ve applied for an exemption on the basis that you reasonably expect to claim creative averaging, voluntarily proceeding with MTD could potentially muddy the waters over your exemption and averaging position.

HMRC’s published guidance confirms that this exemption exists specifically for people who reasonably expect to make an averaging claim. Until HMRC provides clearer guidance on how filing an MTD update interacts with a pending exemption application, we would rather avoid creating an unnecessary argument later.

Put another way, if we’re going to have an argument with HMRC, we’d much rather it was about HMRC’s failure to process an exemption application properly than about whether a client compromised their position by filing MTD returns in the meantime.

What about penalties?

There is some useful reassurance here.

HMRC has confirmed that there are no penalty points for missing quarterly MTD update deadlines during the 2026/27 tax year.

The first quarterly deadline was 7 August 2026, but HMRC’s published guidance specifically says that penalty points will not be issued for late quarterly updates during this first year of MTD.

That does not mean MTD can simply be ignored if you are genuinely required to use it. Someone within MTD will still need to bring their quarterly submissions up to date before submitting their tax return.

But it does take some of the immediate pressure away while an exemption application is being sorted out.

Normal Self Assessment filing and payment deadlines continue to apply.

So what should authors do?

If we’ve applied for a temporary MTD exemption for you because you may be eligible for creative averaging and you subsequently receive an HMRC reminder about an MTD quarterly update, please send it to us rather than assuming you need to file something.

We’ll check your individual position and, where necessary, take it up with HMRC.

This is a new system and we expect there will be a few teething problems as HMRC’s various systems catch up with one another.

For the moment, our approach is simple: if there’s a legitimate basis for an exemption and we’ve applied for it, we’d rather pursue that exemption with HMRC than risk unnecessarily putting an author into MTD and potentially complicating a future creative averaging claim.

As ever with MTD, watch this space.