Key takeaways
- Every VAT-registered business must follow Making Tax Digital (MTD) for VAT, whatever its turnover, unless HMRC has granted an exemption.
- You must keep VAT records digitally and file returns through MTD-compatible software.
- Data must move between your records and the return through digital links; retyping figures from one system into another is not allowed.
- Spreadsheets are still allowed if you use bridging software to send the return.
- Exemptions are available if you are digitally excluded, for example because of age, disability, location or religious beliefs, or are subject to an insolvency procedure.
Making Tax Digital (MTD) for VAT changed how VAT returns are prepared, not how much VAT you pay. Since April 2022 it has applied to every VAT-registered business. If you are registered for VAT, you need digital records, compatible software and an unbroken digital trail from your bookkeeping to the return HMRC receives.
Who has to comply
MTD for VAT was introduced in two stages:
| Date | Who it applied to |
|---|---|
| VAT periods starting on or after 1 April 2019 | Businesses with taxable turnover above the VAT registration threshold |
| VAT periods starting on or after 1 April 2022 | All VAT-registered businesses, including voluntary registrations |
There is no turnover limit below which you can opt out. A business that registered voluntarily, with turnover well below the £90,000 registration threshold, must follow the same rules as one turning over millions.
When you register for VAT, HMRC signs the business up for MTD automatically. You then authorise your software to connect to your HMRC account.
The digital records you must keep
MTD requires certain records to be kept in software, for example accounting software or a spreadsheet. As a minimum the digital records include:
- your business name, principal place of business and VAT registration number
- any VAT accounting schemes you use, such as the Flat Rate Scheme
- for each supply you make: the time of supply (tax point), the value and the rate of VAT charged
- for each supply you receive: the time of supply, the value and the amount of input VAT you are claiming
- any adjustments you make to your VAT account, such as error corrections or partial exemption adjustments
You still need to keep the underlying documents, such as invoices and receipts, but they can be paper. It is the summary data that must be digital. Records must be kept for six years.
Digital links: the rule most businesses get wrong
Where a business uses more than one piece of software, for example a spreadsheet for sales and accounting software for purchases, data must pass between them through digital links. A digital link is an electronic transfer or exchange of data between programs.
Allowed digital links include:
- linked cells or formulas within a spreadsheet, or between spreadsheets
- importing or exporting data files, such as CSV or XML
- automated transfers through an API or a bank feed
- emailing a spreadsheet that then has its data imported
Not allowed:
- reading figures from one system and typing them into another
- copying and pasting data between programs (HMRC treats cut and paste as manual transfer)
The figures that end up in the nine boxes must flow from the records without manual intervention. Some adjustments that cannot sensibly be made in the software, such as a correction worked out on paper, can be entered manually in the return software.
Choosing software
You have three broad options:
- Cloud accounting software that keeps the records and files the return, such as Xero, QuickBooks, Sage, FreeAgent and many others. This suits most small businesses and gives you bank feeds and automatic VAT coding. Our accounting software reviews compare the main products.
- Spreadsheets plus bridging software. If you are happy keeping records in Excel or a similar program, bridging software reads the totals from the spreadsheet through a digital link and submits them to HMRC.
- An agent’s software. If an accountant files for you, they can use their own MTD software, provided your records reach it through digital links.
Check that any product you choose is on HMRC’s list of software compatible with MTD for VAT and that it handles the schemes you use.
What happens to the old VAT online account
Businesses can no longer file VAT returns through the old HMRC online form unless they hold an exemption. You can still use your HMRC online account to view VAT liabilities and payments, change your details and see your submission history.
Exemptions from MTD for VAT
You can apply to HMRC for an exemption if it is not reasonable or practical for you to use software. HMRC accepts applications from businesses that are digitally excluded, for example because of:
- age, disability or health
- remoteness of location, where a reliable internet connection is not available
- religious beliefs that are incompatible with using electronic communications or keeping electronic records
Businesses subject to an insolvency procedure are also exempt. If you are granted an exemption, HMRC tells you how to file instead, usually by phone or on paper.
Penalties
MTD for VAT sits alongside the normal VAT penalty regime. Late returns attract penalty points under the points-based system and late payments attract late payment penalties and interest. Separately, HMRC can charge penalties for failing to keep the required digital records, and can challenge returns built with manual transfers where the rules require digital links. The VAT penalties guide explains the amounts.
Getting ready if you are newly registered
- Choose MTD-compatible software and set it up before your first VAT period ends.
- Connect the software to HMRC through its authorisation step, using your Government Gateway details.
- Set up VAT codes on your sales and purchase records so the return builds automatically.
- Decide whether any VAT schemes, such as cash accounting, suit you before your first return.
- Diary your first deadline: one month and seven days after the end of your first VAT period.
MTD is also coming to Income Tax for sole traders and landlords, from April 2026 for those with qualifying income over £50,000. See Making Tax Digital for Income Tax if that affects you as well.
Frequently asked questions
Can I still use spreadsheets for VAT under Making Tax Digital?
Yes, as long as the spreadsheet is your digital record and you use bridging software to send the return, with digital links all the way from the records to the submission.
Does MTD for VAT apply if I registered voluntarily?
Yes. Since April 2022 every VAT-registered business must follow MTD for VAT, including those below the registration threshold.
Is copying and pasting between spreadsheets a digital link?
No. HMRC treats cut and paste as a manual transfer. Use linked cells, formulas, imports or exports instead.
Do I need a separate sign-up for MTD for VAT?
New VAT registrations are signed up automatically. You still need to authorise your chosen software to connect to HMRC before you can file.
Can my accountant file under MTD for me?
Yes. Agents use their own MTD software and an agent services account. Your records still need to reach their software through digital links.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.