What is Making Tax Digital for VAT?
MTD for VAT is part of HMRC’s wider Making Tax Digital initiative, which aims to fully digitise tax reporting for certain groups of taxpayers.
Under Making Tax Digital for VAT, businesses must keep all VAT records digitally and submit VAT returns using MTD-compatible software.
As such, VAT returns can no longer be submitted by manually entering figures into the HMRC VAT portal. Information must now be sent directly from software that connects to HMRC via a secure digital link.
We’ll explain these requirements in more detail later on in this guide.
Who must comply with MTD for VAT?
Making Tax Digital for VAT applies to all VAT-registered businesses in the UK, regardless of turnover or business size.
This includes businesses that are:
Registered for VAT because their taxable turnover exceeds the VAT registration threshold (currently £90,000 — always refer to the official gov.uk guidance for the most up-to-date threshold).
Voluntarily VAT-registered, even if their turnover is below the threshold.
Once a business is VAT-registered — whether by choice or necessity — MTD for VAT becomes mandatory.
MTD for VAT also applies across all business structures. Sole traders, limited companies, partnerships, and other VAT-registered organisations are all required to follow the same digital record-keeping and submission rules.
Ultimately, if you’re registered for VAT, you should assume that MTD for VAT applies to you, unless HMRC has explicitly confirmed that you are exempt.
Exemptions from MTD for VAT
In some cases, a business may apply for an exemption from MTD for VAT due to digital exclusion — for example, if you cannot reasonably use digital tools due to:
A disability or health condition
Age-related barriers
Lack of access to reliable internet or digital infrastructure
Note that exemptions for the above-listed reasons are not automatic; you must apply to HMRC and receive confirmation. If an exemption is granted, you can continue submitting VAT returns using non-MTD methods.
You are automatically exempt from MTD for VAT and do not need to apply for an exemption if you or your business are subject to an insolvency procedure, or if you’ve cancelled your VAT registration but still need to send your final return.
For more information, check the official gov.uk guidance on Making Tax Digital for VAT exemptions.
The three core MTD for VAT requirements
To comply with Making Tax Digital for VAT, businesses must meet three specific legal requirements. Together, these rules ensure that VAT records are kept digitally and that information is submitted to HMRC accurately and securely.
1. Keeping digital VAT records
Under MTD for VAT, you must keep certain VAT records in digital form and retain them for at least six years.
These records include:
Your VAT registration number
The VAT accounting scheme you use (if applicable)
VAT on sales and purchases, including the time of supply, value, and rate of VAT
Any VAT adjustments made during the accounting period
Paper records alone are no longer sufficient. While you may still receive paper invoices or receipts, the relevant VAT information must be captured and stored digitally in a compliant system.
2. Using MTD-compatible software
VAT returns must be submitted using HMRC-recognised MTD-compatible software.
This software connects directly to HMRC’s systems via an API, allowing VAT return data to be submitted securely and digitally. As a result, businesses can no longer manually enter VAT figures into the HMRC VAT portal.
You can meet this requirement in one of two ways:
By using accounting software that both keeps digital VAT records and submits VAT returns, or
By using spreadsheets to keep records, alongside bridging software that submits the data digitally to HMRC.
Whichever option you choose, the software must be recognised by HMRC specifically for MTD for VAT. We’ll share some guidance on how to choose the right software in a later section.
3. Maintaining digital links between systems
If you use more than one system or tool to manage VAT records — for example, spreadsheets alongside accounting software — the data must be connected by digital links.
A digital link means that information flows automatically between systems without manual intervention. This essentially means that you can’t copy and paste figures, retype totals, or make any manual adjustments during data transfer.
The purpose of digital links is to reduce the risk of errors and ensure the integrity of VAT data from record-keeping through to submission.
What MTD for VAT does NOT change
It’s important to note that MTD for VAT only changes how VAT is managed and reported — it doesn’t have any bearing on how much you pay. Making Tax Digital does not impact:
How VAT is calculated
Which VAT rates apply
How often you submit your VAT returns
When VAT payments are due
The key difference under MTD for VAT is the process — everything else stays the same.
MTD for VAT deadlines and penalties: a brief overview
Making Tax Digital for VAT doesn’t change when VAT returns are due, but it does change how strictly deadlines are enforced.
Once you’re within scope of MTD for VAT, you’re expected to meet all submission and payment deadlines consistently. Missing deadlines can result in penalties, even if no VAT is due for that period.
VAT return deadlines under MTD
VAT returns must be submitted one calendar month and seven days after the end of each VAT accounting period. This is the same deadline that applied before MTD for VAT was introduced.
Most businesses submit VAT returns quarterly, although you may submit monthly or annually depending on your VAT accounting scheme. MTD applies regardless of how often you submit — the deadlines are tied to your VAT period.
For a full overview of VAT submission and payment dates, see our guide to Making Tax Digital deadlines.
Penalties for not complying with MTD for VAT
HMRC now uses a points-based penalty system for late VAT return submissions, alongside percentage-based penalties and interest for late VAT payments.
In simple terms:
Missing a VAT return deadline can incur penalty points
Reaching a points threshold triggers a financial penalty
Paying VAT late can result in additional charges and interest
The more frequently deadlines are missed, the greater the risk of penalties, so keeping on top of your deadlines is crucial.
You can learn more about how the penalty points system works, when fines apply, and how to avoid them in our full guide to Making Tax Digital penalties.
The benefits of Making Tax Digital for VAT
Making Tax Digital for VAT isn’t just about compliance. Many VAT-registered businesses report real, tangible benefits once they’re using compatible software to manage their records and returns.
Here are some of the positive changes you’ll likely notice once you embrace the switch to digital.
1. Fewer errors and improved accuracy
According to HMRC’s final evaluation of Making Tax Digital for VAT, businesses using fully functional MTD-compatible software reported fewer errors in their VAT records and returns. By reducing manual data entry and encouraging consistent digital record-keeping, MTD helps lower the risk of calculation mistakes and omissions.
2. Time savings
HMRC’s evaluation found that businesses using MTD-compatible software saved an estimated 26 to 40 hours per year on VAT-related tasks and wider business record-keeping. These time savings typically come from reduced manual processing, easier reconciliation, and more streamlined submission processes.
3. Better visibility into your VAT position
The evaluation also found that digital tools give businesses clearer, more up-to-date visibility of their VAT position throughout the accounting period. Instead of working everything out at the end of the quarter, businesses can monitor VAT liabilities in real time, supporting better cash-flow planning.
4. Greater confidence in VAT compliance
HMRC reports that, after moving to MTD, many businesses felt more confident that their VAT returns were accurate. Regular digital record-keeping and structured submissions reduce last-minute pressure and make VAT compliance feel more predictable and controlled.
5. A foundation for more efficient financial management
While MTD for VAT focuses on compliance, HMRC’s findings suggest it often encourages broader digital adoption. Businesses that move to digital records and software for VAT frequently streamline other financial processes at the same time, improving overall efficiency beyond VAT alone.
To stay compliant and realise these benefits, you must have the right tools and processes in place. With that, let’s recap all the main boxes you need to tick for MTD for VAT.
Making Tax Digital for VAT compliance checklist
Once you understand the rules, complying with Making Tax Digital for VAT is largely about having the right systems set up. Use the following checklist to make sure that you’re meeting all of HMRC’s requirements:
You’re VAT-registered. MTD for VAT applies to all VAT-registered businesses, including those that registered voluntarily.
You’ve signed up for MTD for VAT with HMRC. Registration is not automatic. You must complete the sign-up process before submitting VAT returns under MTD.
You’re keeping all the necessary VAT records digitally. This includes details such as your VAT number, VAT accounting scheme, VAT on sales and purchases, and any adjustments. Records must be retained for at least six years.
You’re using HMRC-recognised MTD-compatible software to submit your VAT returns.
Your systems are connected by digital links (if you’re using more than one tool, e.g. spreadsheets and accounting software).
You submit VAT returns by the correct deadlines (one calendar month and seven days after the end of each VAT period).
You pay VAT on time. MTD does not change VAT payment deadlines, and late payments can incur interest and penalties.
If you can tick off each of these points, you’re on track to remain compliant with Making Tax Digital for VAT.
How to choose Making Tax Digital-compatible software
One of the most important decisions you’ll make under MTD for VAT is choosing the right software. At a minimum, MTD-compatible software should:
Be recognised by HMRC for MTD for VAT
Allow you to keep VAT records digitally
Enable you to submit VAT returns directly to HMRC
Maintain digital links between records and submissions
The right solution should also fit how you run your business, reducing manual admin rather than adding to it.
For maximum efficiency, consider a solution that combines business banking with MTD-compatible accounting in one place, such as Tide. Tide’s built-in accounting tools support digital VAT records and VAT return submissions in line with HMRC’s requirements. Learn more about how Tide’s accounting features can help you breeze through tax season.
Wrapping up
Making Tax Digital for VAT is now a standard part of VAT compliance for UK businesses. While it may feel like a big shift at first, the requirements are clear — and once the right systems are in place, MTD becomes a routine part of running your business.
Here are the most important points to remember:
MTD for VAT is mandatory for all VAT-registered businesses.
Compliance hinges on three things: keeping digital VAT records, using HMRC-recognised software, and maintaining digital links between systems
Choosing the right software is crucial. The tools you use will impact both your long-term MTD compliance and your day-to-day processes.
If you haven’t already, it’s worth reviewing how you currently manage VAT and whether your setup fully meets MTD requirements. Small changes now can prevent issues later on — and improve your overall efficiency.
Want to streamline your business banking and accounting? With Tide, you can keep digital VAT records, submit VAT returns using MTD-compatible software, and manage your finances all in one place. Learn more about how Tide helps you stay organised and keeps you fully compliant with Making Tax Digital.
