For many years, UK firms managed their taxes manually, with annual submissions. However, this strategy is evolving now with the newest technology as HM Revenue & Customs continues to adopt Making Tax Digital (MTD) to modernise the UK tax system.
Most companies are well aware of MTD for VAT, where VAT-registered businesses must maintain their records of value-added tax digitally and file returns using appropriate software. The MTD for Income Tax will be the next stage of transition, set to apply to landlords and self-employed individuals beginning in April 2026.
There are differences in the reporting requirements, dates and compliance regulations between MTD for VAT vs MTD for Income Tax, which can be pretty confusing & lead to false assumptions of it being the same.
In this blog, we will look at the important different aspects of the two schemes, including deadlines and what businesses need to do in order to remain compliant with each scheme.
What Is MTD for Income Tax (ITSA)?
MTD for Income Tax (ITSA) is part of the Making Tax Digital system, started by HMRC to make tax reporting more digital.
MTD for income tax is applicable to self-employed persons and landlords. Under this approach, they have to keep digital records and provide quarterly updates of their income and expenses to HMRC using suitable software, rather than reporting everything once a year.
MTD for Income Tax will begin in April 2026 for individuals earning above £50,000 annually and in April 2027 for those earning more than £30,000. The main aim is to decrease errors and make it easier for taxpayers to track their tax position throughout the year.
What Is MTD for VAT?
HMRC has started MTD for VAT as part of the Making Tax Digital system. VAT-registered enterprises must retain digital records and submit their VAT returns using MTD-compatible accounting software.
Under MTD for VAT, businesses are required to record their VAT transactions digitally. Further, the VAT returns should be sent directly to HMRC using approved software. This eliminates the need of maintaining manual records or spreadsheets with no digital links.
Since April 2022, MTD for VAT has become mandatory for all VAT-registered enterprises, which has helped to eliminate calculation errors and increase VAT reporting accuracy.
Key Differences Between MTD for VAT and MTD for Income Tax
Both systems are part of HM Revenue & Customs Making Tax Digital programme; however, they apply to different taxpayers and have distinct reporting requirements.
| Basis | MTD for VAT | MTD for Income Tax (ITSA) |
| Who It Applies To | VAT-registered businesses | Self-employed individuals and landlords |
| Start Date | Mandatory for all VAT-registered businesses since April 2022 | Starts April 2026 for income above £50,000 and April 2027 for income above £30,000 |
| What Is Reported | VAT collected on sales and VAT paid on purchases. | Income and expenses from business or property. |
| Reporting Frequency | Quarterly VAT returns | Quarterly updates + final end-of-year declaration |
| Main Purpose | Improve accuracy of VAT reporting | Replace the traditional Self Assessment system with digital reporting |
In simple terms, MTD for VAT focuses on VAT reporting for registered businesses, whereas MTD for Income Tax focuses on digital income reporting for self-employed persons and landlords.
Making Tax Digital Deadlines for VAT vs Income Tax
The Making Tax Digital (MTD) scheme, launched by HMRC, has various deadlines based on the type of tax.
MTD for VAT Deadlines:
- VAT returns are usually filed every 3 months (quarterly).
- The deadline to submit the VAT return and pay VAT is 1 month and 7 days after the end of the VAT quarter.
Example:
| VAT Quarter | Period Covered | MTD VAT Return Deadline |
| Q1 | 1 Jan – 31 Mar | 7 May |
| Q2 | 1 Apr – 30 Jun | 7 August |
| Q3 | 1 Jul – 30 Sep | 7 November |
| Q4 | 1 Oct – 31 Dec | 7 February (Next year) |
MTD for Income Tax Deadlines( (ITSA) and Threshold:
MTD for Income Tax starts from 6 April 2026 for individuals earning over £50,000 from self-employment or property income.
You must send quarterly updates to HMRC.
Example: Quarterly Update Deadlines
| Event | Deadline |
| Start keeping records using MTD income tax software. | 6 April 2026 |
| Deadline to send your first quarterly update | 7 August 2026 |
| Deadline to send your second quarterly update | 7 November 2026 |
| Deadline to send your third quarterly update | 7 February 2027 |
| Deadline to send your fourth quarterly update | 7 May 2027 |
Instead of filing a single yearly Self Assessment return, taxpayers under MTD for Income Tax will be required to submit quarterly updates and a final end-of-year declaration using certified digital software.
Who Must Comply with MTD for VAT vs Income Tax?
Under HM Revenue & Customs’ Making Tax Digital project, different sorts of taxpayers must comply with the MTD for VAT and MTD for Income Tax regulations.
Who Must Comply with MTD for VAT?
Businesses must follow MTD for VAT if they are registered for VAT in the UK. This includes:
- Businesses with a taxable revenue above £90,000 (the VAT registration level).
- Businesses voluntarily enrolled for VAT, even if their revenue was below the threshold.
Businesses falling in the mentioned categories must keep digital records and file VAT returns with MTD-compatible software.
Who Must Comply with MTD for Income Tax?
MTD for Income Tax primarily affects self-employed individuals and landlords, based on their annual income:
- From April 2026: Individuals earning over £50,000 from self-employment or property income.
- From April 2027: Individuals earning over £30,000 from self-employment and property will be eligible for MTD for Income tax self-assessment.
Those involved must maintain digital records and submit quarterly updates, as well as a final declaration, using certified accounting software.
Penalties for Missing MTD Deadlines for VAT & Income Tax
If individuals or companies fail to comply with Making Tax Digital (MTD) rules, HM Revenue & Customs may levy penalties under its points-based penalty system.
- Late Submission Penalties
Each missing submission results in one penalty point. When the points exceed the threshold, a £200 penalty is applied.
- Typical thresholds are:
- Quarterly submissions: 4 points (Applies to most MTD for VAT filers and MTD for ITSA quarterly updates)
- Monthly submissions: 5 points (Applies to VAT filers who submit monthly)
- Annual submissions: 2 points (Applies to the annual end-of-period statement required under MTD for ITSA)
After reaching the limit, each subsequent late submission can result in a £200 penalty until compliance improves.
- Late Payment Penalties
If tax is paid late, penalties may apply depending on how long the payment is overdue:
- Up to 15 days late: No penalty if paid within this period
- 16 – 30 days late: Around 2% penalty on the outstanding tax
- Over 30 days late: A further 2% penalty on the amount still outstanding at day 30 (bringing the total to around 4%), plus an additional penalty accruing at 4% per year on the unpaid balance until settled, and interest charges
Note: The same late payment penalty structure applies to both MTD for VAT (from January 2023) and MTD for Income Tax Self Assessment (from April 2026).
- Interest on Late Payments:
HMRC also imposes interest on outstanding tax, which accumulates until the whole amount is paid. The rate is based on the Bank of England base rate plus plus 4%, meaning it can change over time in line with base rate adjustments.
MTD requires more regular reporting and digital submissions; missing deadlines can quickly result in multiple penalties. This is why businesses and individuals are encouraged to utilise reputable accounting software and maintain accurate digital records all year.
How to Prepare for MTD Compliance for VAT and Income Tax
Early preparation for Making Tax Digital (MTD) can save businesses and people from errors, penalties, and last-minute stress. Because the system involves digital reporting – financial records and processes must be organised ahead of time in accordance with HM Revenue & Customs regulations.
- Register for MTD with HMRC: Ensure you are signed up for MTD for VAT or MTD for Income Tax ahead of the relevant deadline; registration is required before you can begin submitting digitally.
- Use MTD-Compatible Accounting Software: Make use of MTD compatible software to file your taxes securely and smoothly.
- Maintain Digital Financial Records: You need to be accurate and punctual to record all VAT transactions and invoices online.
- Understand the Reporting Schedule: Businesses are required to submit quarterly VAT returns under MTD. For MTD for Income Tax, taxpayers must submit quarterly updates as well as a final declaration each year.
- Review Income Thresholds: Check to see if your income or turnover meets the MTD constraints, such as VAT registration threshold or income criteria for MTD for Income Tax.
- Work with an Accountant or Advisor: Accountants can assist with setting up the appropriate software, reviewing records, and ensuring that filings are accurate and timely.
Key Takeaways for MTD for VAT vs MTD for Income Tax Compliance
- MTD for VAT is already required for the majority of VAT-registered businesses in the UK with taxable revenue over £90,000. Businesses must retain digital records and submit VAT returns using compatible software.
- MTD for Income Tax (MTD for ITSA) will begin in April 2026 for self-employed individuals and landlords earning above £50,000, and in April 2027 for those earning more than £30,000.
- MTD for Income Tax requires quarterly digital reporting, which means taxpayers must provide updates to HMRC every three months rather than filing a single annual Self Assessment form.
- MTD for VAT involves digital record-keeping and software-based VAT submissions, whereas MTD for Income Tax requires quarterly updates and a final declaration.
- To ensure compliance with both MTD regimes, use HMRC-approved accounting software such as Xero, QuickBooks, or comparable solutions.
- Failure to comply may result in penalties, including late submission penalties and HMRC’s points-based penalty system for missing deadlines.
- Before the new laws go into effect, businesses should begin preparing by switching to digital record-keeping, training employees, and ensuring their accounting systems are MTD-compliant.
Full MTD Compliance Made Easy with E2E Accounting UK
Compliance with the Making Tax Digital (MTD) rules for VAT and Income Tax will be a challenge for a lot of businesses, landlords and self-employed individuals. To comply with the legal obligations imposed by HMRC regarding the MTD requirements, businesses and individuals will need to develop the appropriate hybrid systems and know -how to keep digitally stored records and provide the correct quarterly information to HMRC.
E2E Accounting UK helps make the entire MTD experience easier for Businesses & self-employed, landlords alike. The members of our team will work with you to set up “MTD Compliant” software solutions, create a digital record-keeping system, assist you in reporting on a quarterly basis, submit VAT Returns and submit Year End declarations, ensuring that all records meet HMRC rules and regulations.
Our team of specialists will also assist in ensuring that your financial records are accurate, compliant, and stress-free. Whether you require assistance with MTD for VAT filings or are preparing for the upcoming MTD for Income Tax requirements starting in April 2026, we are here to help you stay on track and ahead of every deadline.
People Also Ask:
Who is required to comply with MTD for VAT?
Making Tax Digital (MTD) for VAT applies to all VAT-registered firms in the UK. This implies they must preserve digital VAT records and submit VAT returns via MTD-compatible software rather than manually filing through the HMRC system.
What income sources are included in MTD for Income Tax?
Making Tax Digital for Income Tax (MTD ITSA) applies to income from:
– Self-employment income (sole traders or freelancers)
– Property rental income (UK or overseas property)
HMRC combines these two revenue streams to determine if your total gross income reaches the MTD criteria. Income such as employment salary (PAYE), dividends, savings interest, and pensions are not included in the MTD threshold calculation, although they may be disclosed in the final end-of-year declaration.
What are the deadlines for MTD for VAT and MTD for Income Tax?
MTD for VAT:
VAT-registered businesses must submit their VAT return and pay any outstanding VAT within one month and seven days of the end of their VAT period (typically quarterly).
Example deadlines:
VAT period ending 31 March → 7 May deadline
VAT period ending 30 June → 7 August deadline
VAT period ending 30 September → 7 November deadline
VAT period ending 31 December → 7 February deadline
MTD for Income Tax (ITSA):
Businesses and landlords within the MTD threshold must submit quarterly updates to HMRC:
6 Apr – 5 Jul → 7 August
6 Apr – 5 Oct → 7 November
6 Apr – 5 Jan → 7 February
6 Apr – 5 Apr → 7 May
After these, a final end-of-year statement must be completed to establish the overall tax liability.
How are penalties calculated under both MTD systems?
HMRC uses a points-based penalty system for late submissions under both MTD for VAT and MTD for Income Tax. Each late return incurs one penalty point. When the points reach the threshold (for example, 4 points for quarterly submissions), a £200 penalty is imposed.
For late payments, HMRC charges:
– No penalty if the tax is paid within 15 days of the due date
– A 2% penalty if the tax remains unpaid from day 16 to day 30
– A further 2% penalty on the outstanding amount at day 30 (bringing the total to around 4%), plus an additional penalty accruing at 4% per year on the unpaid balance, and interest on the outstanding amount until it is paid in full.
Example: For example, if £10,000 is still owed at day 30, the further 2% adds another £200 – bringing the total penalty to around £400. Beyond that, HMRC also applies a daily penalty at an annual rate of 4% on whatever remains unpaid. On a £10,000 balance, that works out to roughly £1.10 per day – which may seem small, but adds up the longer the debt goes unsettled, alongside interest charges running concurrently.
Note: The same late payment penalty structure applies to both MTD for VAT (from January 2023) and MTD for Income Tax Self Assessment (from April 2026).
Is there any overlap between VAT and Income Tax MTD compliance?
Yes, there is some similarity. Both MTD for VAT and MTD for Income Tax (ITSA) require firms to keep digital records and file returns using MTD-compliant software.
The differences are – MTD for VAT focuses on VAT returns, submitted quarterly or monthly, depending on the filer. In contrast, MTD for Income Tax involves quarterly income updates and a final annual declaration for self-employed individuals and landlords.
How can E2E Accounting UK help with MTD compliance for VAT and Income Tax?
E2E Accounting UK assists businesses in remaining compliant with MTD by using MTD-compatible accounting software, preserving digital records, and submitting VAT returns and quarterly income updates to HMRC on time. Be it MTD for VAT vs MTD for Income Tax, we can help with all.