MTD for VAT vs MTD for Income Tax: What's the Difference

If you have already been dealing with MTD for VAT, you might assume MTD for Income Tax works the same way. It does not. While both programmes share the same goal — digitising tax reporting — they have different rules, different deadlines, and different requirements. Here is a clear comparison to help you understand what is changing.

The Basics: Two Separate Programmes

Making Tax Digital is HMRC's overarching programme to move tax reporting online. Within that programme, there are separate streams:

• MTD for VAT has been mandatory since April 2019 for VAT-registered businesses above the £90,000 threshold (previously £85,000), and since April 2022 for all VAT-registered businesses regardless of turnover.
• MTD for Income Tax (MTD ITSA) becomes mandatory from April 2026 for sole traders and landlords with gross income over £50,000, and from April 2027 for those over £30,000.

They are separate obligations. Being compliant with one does not mean you are compliant with the other.

Key Differences

Who Must Comply

MTD for VAT: All VAT-registered businesses, regardless of business structure (sole traders, partnerships, limited companies).

MTD for Income Tax: Sole traders and landlords with gross income above the threshold. Limited companies are not included — they will eventually be covered by MTD for Corporation Tax, which has no confirmed start date.

What You Submit

MTD for VAT: VAT returns, typically quarterly (though some businesses use monthly or annual schemes). Each return contains your output VAT (charged to customers) and input VAT (paid on purchases), with the net amount due to or from HMRC.

MTD for Income Tax: Quarterly updates summarising your business income and expenses by category. Plus a final declaration at year-end that replaces your Self Assessment tax return.

Submission Frequency

MTD for VAT: Depends on your VAT accounting period — usually quarterly, but can be monthly or annual.

MTD for Income Tax: Four quarterly updates plus a final declaration — five submissions per year. The quarters follow the tax year (6 April to 5 April), not your chosen VAT period.

Deadlines

MTD for VAT: One month and seven days after the end of your VAT quarter.

MTD for Income Tax: Approximately one month after the end of each quarter (7 August, 7 November, 7 February, 7 May), plus 31 January for the final declaration.

Software Requirements

MTD for VAT: You need software that can submit VAT returns digitally to HMRC. Many businesses use bridging software to link their spreadsheets.

MTD for Income Tax: You need software that can submit quarterly updates and a final declaration. Bridging software may also be available, but full MTD software is recommended for the more frequent reporting.

Not all software that handles MTD for VAT also handles MTD for Income Tax. If you are VAT-registered and self-employed, check that your software covers both. Accounted handles MTD for Income Tax and works alongside your VAT software.

Record Keeping

MTD for VAT: You must keep digital records of your supplies and purchases, with VAT amounts, for each VAT period.

MTD for Income Tax: You must keep digital records of all business income and expenses, categorised by type. The record-keeping requirements are more detailed because you are reporting profit, not just VAT.

If You Are VAT-Registered and Self-Employed

If you are a sole trader who is also VAT-registered, you will need to comply with both MTD for VAT and MTD for Income Tax. This means:

• Submitting VAT returns digitally (as you already do)
• Submitting quarterly income and expense updates for Income Tax
• Filing a final declaration at year-end

The VAT returns and Income Tax quarterly updates are separate submissions, even though they cover overlapping financial data. Your software may be able to handle both, or you may need separate tools for each.

The good news is that if you have been doing MTD for VAT since 2019, you are already used to digital record keeping and quarterly submissions. MTD for Income Tax adds more reporting, but the underlying habits are the same.

What VAT Taught Us About MTD

MTD for VAT has been running for several years, and there are lessons that apply to MTD for Income Tax:

The transition is not as painful as expected. Most businesses found that once they had the right software set up, MTD for VAT was straightforward. The same is likely true for Income Tax.

Bank feeds make everything easier. Businesses that connected their bank accounts to their software found MTD far less burdensome than those relying on manual entry.

Early adoption pays off. Those who signed up voluntarily before the mandate had a smoother experience than those who scrambled at the last minute.

Software matters. Choosing the right software — one that automates as much as possible — made the biggest difference to the day-to-day experience.

Penalties Comparison

MTD for VAT now uses the same points-based penalty system that MTD for Income Tax will use. If you are already subject to late submission penalty points for VAT, these are tracked separately from Income Tax — they do not combine.

| | MTD for VAT | MTD for Income Tax | |--|------------|-------------------| | Penalty points threshold | 4 (quarterly filers) | 4 (quarterly filers) | | Penalty per late submission (above threshold) | £200 | £200 | | Late payment: 15 days | 2% of outstanding | 2% of outstanding | | Late payment: 30 days | Additional 2% | Additional 2% | | Interest | From day 1 | From day 1 |

Do You Need Different Software?

It depends on your current setup:

• If your existing VAT software also supports MTD for Income Tax, you may be able to use one tool for both.
• If your VAT software does not support Income Tax, you will need a second tool for your quarterly updates and final declaration.
• If you are not VAT-registered, you only need MTD for Income Tax software.

Check with your software provider to confirm what they support. HMRC's list of compatible software distinguishes between VAT and Income Tax compatibility.

The Road Ahead

MTD for VAT was the first phase. MTD for Income Tax is the second. Eventually, HMRC plans to bring all taxes into the MTD framework, potentially including Corporation Tax and other taxes. The direction is clear: digital, quarterly, software-driven.

If you are a sole trader navigating both VAT and Income Tax obligations, choosing software that handles your complete tax picture is the smartest investment you can make.

MTD is coming. Accounted is already compliant. Start free and be ready before the deadline.