Under Making Tax Digital (MTD) for VAT, every VAT-registered UK business must keep VAT records digitally and submit VAT returns to HMRC through MTD-compatible software; HMRC's old online VAT return form is no longer available for most businesses. This has applied to all VAT-registered businesses, including voluntary registrants, since April 2022.
Making Tax Digital is HMRC's programme to move tax record-keeping and filing online. For VAT it's already mandatory, so if you're VAT registered, here's what you need to have in place.
Who needs to follow MTD for VAT
All VAT-registered businesses in the UK, whatever their turnover. A small number of exemptions apply, for example on grounds of digital exclusion, but you must apply to HMRC for one.
The three requirements
- Keep digital records. Your business name, address and VAT number, the VAT accounting schemes you use, and the VAT on each sale and purchase must be kept in software.
- Keep digital links. Data must move between programs digitally (exports, imports, API links), not by copying and pasting or retyping figures.
- File through compatible software. VAT returns go to HMRC via MTD-compatible software or bridging software.
Choosing software
Most cloud accounting platforms, including Xero, QuickBooks Online and Sage, are MTD compatible and file VAT returns directly. If you use spreadsheets, you'll need bridging software.
Common MTD mistakes
- Manually retyping totals into the return (this breaks the "digital links" rule)
- Missing VAT on imports and reverse-charge transactions
- Not reconciling the VAT control account with the return
- Leaving it to the deadline and discovering software or agent access problems
Penalties
HMRC uses a points-based system for late VAT returns and separate charges and interest for late payment. Filing and paying on time, every period, is the simplest protection.
How Avore Solutions can help
Our tax and compliance team handles VAT registration and MTD-compatible VAT returns, and our bookkeeping service keeps your records digital and reconciled. Talk to us.
Frequently asked questions
Does MTD for VAT apply if I'm below the VAT threshold?
Yes, if you are VAT registered. Since April 2022 MTD for VAT applies to all VAT-registered businesses, including those that registered voluntarily below the threshold.
Can I still use spreadsheets under MTD?
Yes, but only with bridging software that submits the return to HMRC digitally. The data must flow digitally between records and the submission, without manual retyping.
What is MTD for Income Tax?
MTD for Income Tax is a separate regime for sole traders and landlords. It starts from April 2026 for those with qualifying income over £50,000, with lower thresholds planned for later years.