Making Tax Digital for VAT: What You Must Do

Making Tax Digital for VAT requires every VAT registered business to keep digital records and file VAT returns using MTD compatible software. It became mandatory for all VAT registered businesses from April 2022, having applied to those above the registration threshold since April 2019. Digital links must carry data between programs so figures are never re keyed by hand. Penalties now follow the points based VAT system. This guide explains what you must do to stay compliant.

Making Tax Digital, usually shortened to MTD, is HMRC’s programme to move tax administration onto digital records and compatible software. For VAT it is already fully in force, so this is not a future change to plan for but a set of rules your business must meet every quarter. If you run a VAT registered business, or you are approaching the point where you must register, understanding what MTD asks of you will save you time and help you avoid penalties.

What is Making Tax Digital for VAT?

MTD for VAT has two core duties. First, you must keep your VAT records digitally rather than on paper or in a loose set of notes. Second, you must send your VAT return to HMRC using software that connects to their systems, not by typing figures into the old online form. The information you file is broadly the same as before, but the way you record and submit it has changed.

The digital records you must keep include your business name and VAT registration number, the schemes you use, and for each sale and purchase the date, the net value and the VAT rate that applies. Your software then works out the box figures for the return from those records.

When did MTD for VAT become mandatory?

MTD for VAT arrived in stages. From April 2019 it applied to VAT registered businesses whose taxable turnover was above the registration threshold, which at that time was £85,000. From April 2022 it became mandatory for all VAT registered businesses, whatever their turnover, including those that had registered voluntarily below the threshold.

That means the turnover test no longer matters for MTD. If you are VAT registered today, you are within MTD for VAT and must follow the rules. The VAT registration threshold itself is now £90,000, having risen from £85,000 in April 2024, and you can read more about when you must register on our guide to the VAT registration threshold.

What are digital records and digital links?

A digital link is an electronic transfer of data between one piece of software and another that needs no manual handling. Once a figure enters your digital records, it must flow through to your VAT return without anyone copying it across, cutting and pasting it, or typing it in again. HMRC treats manual re keying as a break in the digital journey, and that break is not allowed.

Linked spreadsheet cells, automated imports, and transfers by API all count as digital links. If you keep records in a spreadsheet, you can still comply, but you will usually need bridging software to connect that spreadsheet to HMRC and to preserve the digital links along the way. The aim is a continuous digital trail from your first record to the figure HMRC receives.

What software do you need?

You need MTD compatible software that can keep your digital records and submit returns directly to HMRC. Most mainstream accounting packages are built for this, and many also handle invoicing, bank feeds and bookkeeping in one place. If you prefer spreadsheets, bridging software fills the gap between your spreadsheet and HMRC.

Whichever route you choose, your accounting scheme still shapes what you record. If you use the VAT Flat Rate Scheme, the VAT Cash Accounting Scheme or the VAT Annual Accounting Scheme, your software must reflect that scheme when it prepares your return. Choosing the right scheme and the right software together is worth a conversation with your accountant.

How is MTD for VAT different from MTD for Income Tax?

It is easy to confuse the two, but they are separate schemes with separate timetables. MTD for VAT is already live for every VAT registered business. MTD for Income Tax Self Assessment is a different obligation that is phasing in from April 2026 for sole traders and property income businesses whose qualifying income is above set thresholds, starting with those above £50,000.

So being signed up for MTD for VAT does not put you into MTD for Income Tax, and the two use different software submissions and different deadlines. Our guide to Making Tax Digital for Income Tax explains that scheme in full. You can also browse the wider accountancy and tax guide for related topics.

What penalties apply if you get it wrong?

Late VAT returns and late payments are dealt with under the points based penalty system. Each late return earns a penalty point, and once your points reach a set threshold for your filing frequency you receive a fixed financial penalty. Late payment of the VAT you owe attracts a separate charge that grows the longer the amount stays unpaid, alongside interest. Keeping accurate digital records and filing on time through compatible software is the simplest way to stay clear of these charges.

Getting your records and submissions right takes care, and an HMRC compliance check can be stressful and costly even when your figures are correct. Solar Protect tax investigation insurance covers up to £100,000 of your accountant’s fees with no excess, so you can respond fully without worrying about the bill. Get a quote to see how straightforward cover can be.

Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.