- MTD for VAT is now mandatory for all VAT-registered businesses, regardless of turnover
- Businesses must keep digital records and submit VAT returns using HMRC-compatible software
- Non-compliance can trigger penalties under HMRC’s points-based system
Making Tax Digital for VAT is now mandatory for all VAT-registered businesses in the UK, and you must use compatible software to keep digital records and submit VAT returns directly to HMRC. If you are not using compliant systems, your business is already at risk of penalties.
Most businesses now rely on structured support such as end-to-end accounting services to ensure their Making Tax Digital for VAT obligations are met accurately and on time. This is because MTD is no longer about preparation. It is about ongoing compliance, correct digital record-keeping, and error-free submissions.
Since April 2022, HMRC requires all VAT-registered businesses to follow Making Tax Digital for VAT rules, regardless of turnover. This includes maintaining digital records, using MTD-compatible software, and ensuring data flows between systems through digital links. You can review the official requirements in HMRC’s Making Tax Digital for VAT guidance.
If you fail to comply with Making Tax Digital for VAT, HMRC can apply penalties under the points-based system, including fines for late submissions and late payments. As a result, businesses must ensure their VAT processes are fully aligned with current rules in 2026.
What Making Tax Digital for VAT means in practice
Making Tax Digital for VAT means your business must keep VAT records digitally and submit returns using HMRC-compatible software. You can no longer rely on manual filing through HMRC’s old portal, as digital submission is now the standard.
For most businesses, this shifts VAT from a periodic task to an ongoing compliance process. As a result, accurate record-keeping, structured workflows, and reliable systems are now essential. Many businesses combine this with bookkeeping support to maintain clean records throughout the quarter rather than fixing issues at the deadline.
Who must comply with Making Tax Digital for VAT
Making Tax Digital for VAT applies to all VAT-registered businesses, regardless of turnover.
This includes:
- Sole traders
- Partnerships
- Limited companies
- Businesses registered voluntarily
- Businesses above the £90,000 VAT threshold that must register
If you are not yet registered but expect to cross the threshold, it helps to understand your obligations early. Our guide on VAT registration for sole traders explains when registration becomes mandatory and what to prepare.
Making Tax Digital for VAT compliance requirements
To comply with Making Tax Digital for VAT, your business must meet three core requirements.
Requirement | What it involves | Why it matters |
Digital records | Store VAT data electronically | Reduces errors and ensures auditability |
Compatible software | Use software that connects to HMRC | Enables compliant VAT submissions |
Digital submission | File VAT returns through software | Required under HMRC rules |
These requirements apply to the full VAT process, not just the final submission. HMRC outlines the full framework in its Making Tax Digital for VAT guidance.
Making Tax Digital for VAT digital records and digital links
Making Tax Digital for VAT requires both digital records and digital links between systems.
Digital records include:
- Business name and address
- VAT registration number
- VAT on sales and purchases
- VAT schemes used
Digital links refer to how data moves between systems. This must happen electronically without manual retyping. Therefore, copying and pasting figures between spreadsheets or systems can break compliance.
HMRC sets out these rules in VAT Notice 700/22.
If your process still relies on manual adjustments, it may be worth reviewing how your VAT is calculated. Our VAT calculation guide can help identify gaps.
Making Tax Digital for VAT software explained
Making Tax Digital for VAT software must connect directly to HMRC and support digital record-keeping.
There are two main options:
Software type | Best suited for | Consideration |
Accounting software | Businesses needing full financial management | Requires setup and ongoing use |
Bridging software | Businesses using spreadsheets | Limited functionality beyond submission |
Choosing the right setup depends on your transaction volume, internal processes, and who manages your VAT. Businesses with more complex operations typically benefit from integrated accounting systems rather than standalone tools.
Making Tax Digital for VAT penalties and compliance risks
Making Tax Digital for VAT penalties can apply if your business fails to meet submission or payment deadlines.
HMRC uses a points-based system for late submissions. Once you reach the threshold, a £200 penalty can apply. Additional penalties may follow for repeated failures, alongside late payment charges.
Common risks include:
Issue | Impact |
Late VAT return | Penalty points and fines |
Late VAT payment | Interest and financial penalties |
Non-compatible software | Non-compliant filing |
Manual processes | Break digital link requirements |
Poor record-keeping | Increased error risk |
If you are already facing penalties, our guide to VAT late payment penalties explains how HMRC applies charges.
Making Tax Digital for VAT exemptions
Making Tax Digital for VAT exemptions are limited and must be agreed with HMRC.
You may qualify if it is not reasonably practical to use digital tools due to:
- Disability
- Remote location
- Religious grounds incompatible with digital systems
However, cost or preference for manual systems is not a valid reason. Most businesses should assume that Making Tax Digital for VAT applies unless HMRC confirms otherwise.
Check how your VAT data flows from source to submission. If any step involves manual retyping, your Making Tax Digital for VAT process may not be fully compliant.
How Sleek helps with Making Tax Digital for VAT
Sleek provides structured accounting services designed to keep your business compliant with Making Tax Digital for VAT.
This includes:
- Ongoing bookkeeping support
- MTD-compatible VAT submissions
- Process reviews to reduce errors
- Clear oversight of deadlines and obligations
Rather than treating VAT as a quarterly task, Sleek helps build a consistent process that reduces risk and improves accuracy. You can also explore service options and pricing on our pricing page.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on Making Tax Digital for VAT
Is Excel allowed for Making Tax Digital for VAT?
Yes, Excel can be used for Making Tax Digital for VAT, but only if it forms part of a compliant setup. You will usually need bridging software to connect your spreadsheet to HMRC. However, manual copying and pasting between files can break digital link requirements, so spreadsheets must be structured carefully to remain compliant.
How do you sign up for Making Tax Digital for VAT?
Most VAT-registered businesses are now automatically signed up for Making Tax Digital for VAT. If not, you can register through your HMRC account and link your software. In practice, the key step is ensuring your software is connected properly, as submission must happen through that system rather than manually.
Can accountants handle Making Tax Digital for VAT submissions?
Yes, accountants can manage Making Tax Digital for VAT submissions on your behalf. In fact, many businesses rely on accountants to maintain digital records, review VAT data, and submit returns through compliant software. This reduces the risk of errors, missed deadlines, and penalties, particularly where VAT processes are complex or high-volume.
How long does it take to implement Making Tax Digital for VAT?
Implementation time depends on your current setup. If you already use accounting software, compliance can often be achieved quickly. However, if your records are manual or fragmented, it may take longer to clean data, establish digital links, and set up processes. Planning ahead helps avoid disruption before your next VAT deadline.
What is bridging software for Making Tax Digital for VAT?
Bridging software connects spreadsheets to HMRC systems, allowing you to submit VAT returns without moving to full accounting software. It acts as a link between your existing records and HMRC’s API. While useful for simpler setups, it may not provide the same level of automation or control as full accounting platforms.
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Can I switch to Making Tax Digital for VAT from manual filing?
Yes, but manual filing through HMRC’s old VAT portal is no longer the standard route. To switch, you need to adopt MTD-compatible software, ensure your records are digital, and link your system to HMRC. The transition is usually straightforward if your records are already organised and accurate.
What are common mistakes to avoid with Making Tax Digital for VAT?
Common mistakes include relying on manual processes, using non-compatible software, and leaving VAT reviews until the deadline. These issues can lead to errors, broken digital links, and late submissions. A structured process, supported by compliant software or professional oversight, helps reduce risk and maintain consistent VAT compliance.
