Making Tax Digital for VAT explained
How Making Tax Digital for VAT works in practice and what UK businesses must do to stay compliant.
Making Tax Digital for VAT is HMRC’s mandatory programme requiring every VAT-registered business to keep digital records and file VAT returns through compatible software. If you are still typing figures from a spreadsheet into the old HMRC portal, you are no longer compliant. This guide explains the scope, the digital-link rule, and the software options that satisfy the HMRC Making Tax Digital regime. It sits within our wider Making Tax Digital and software hub, which covers compliance and the tools that support it.
Who is in scope
Since April 2022, MTD for VAT applies to every VAT-registered business, regardless of turnover. There is no longer an exemption for businesses below the £90,000 registration threshold who have voluntarily registered.
- VAT-registered limited companies
- Sole traders and partnerships registered for VAT
- Charities and not-for-profits with taxable supplies
- Overseas businesses with a UK VAT registration
A handful of digitally excluded taxpayers may apply for exemption on grounds of disability, age, remoteness of location, or religious belief. Everyone else must comply.
Digital records and the digital-link rule
You must hold the following information digitally for each VAT period:
| Record type | Required digital fields |
|---|---|
| Sales | Date, net value, VAT rate, output VAT |
| Purchases | Date, net value, VAT rate, input VAT |
| Adjustments | Reason, period, amount |
| Designatory data | Business name, address, VAT number, scheme |
The most important principle is the digital link. Once data enters your accounting system, it must flow through to the VAT return without being manually re-keyed. Copy and paste between cells, or retyping a total into the HMRC portal, breaks the chain. Acceptable digital links include API transfers, linked formulas, CSV imports and emailed XML files imported by software.
Choosing MTD-compatible software
HMRC publishes a register of recognised software. When evaluating options, look for:
- Direct submission to the HMRC MTD API (no portal copy-paste)
- Native bank feeds so transactions enter the ledger automatically
- Receipt capture that posts straight into purchase records
- Adjustment journals with audit trail
- Bridging functionality if you keep working figures in a spreadsheet
Cloud bookkeeping platforms typically cover all five out of the box. See our internal walkthrough on VAT bookkeeping for the day-to-day workflow. If you are weighing up products, our guide to choosing accounting software walks through what to prioritise, and automating your bookkeeping shows how feeds and receipt capture keep your digital records complete.
Penalties for non-compliance
HMRC operates a points-based penalty system for late MTD submissions and a separate interest charge for late payment.
| Trigger | Consequence |
|---|---|
| Missed quarterly submission | 1 point added |
| 4 points reached (quarterly filer) | £200 fixed penalty |
| Each subsequent late return | Further £200 |
| Late payment 16-30 days | 3% of unpaid VAT |
| Late payment 31+ days | 3% plus daily interest |
Points expire after a clean 24-month period. Interest accrues from the due date until paid in full. To stay ahead of these triggers, work through our MTD for VAT checklist before each quarter end.
How MTD for VAT relates to MTD for Income Tax
MTD for VAT was the first phase of HMRC’s wider digitisation plan, and the principles you adopt now will carry across to self-assessment. Sole traders and landlords above the relevant income threshold are being brought into a similar quarterly regime, so the same habits of digital record-keeping and unbroken digital links apply. Our MTD for Income Tax guide explains how the two programmes differ and what to prepare for next.
Getting MTD-ready in ReAI
Most practical issues come down to clean source data. Tighten up your chart of accounts , connect bank feeds, and review the VAT control account reconciliation before each filing. The HMRC Making Tax Digital overview is the authoritative source for current rules. See pricing to start filing in minutes.