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Making Tax Digital for VAT (MTD for VAT) has been mandatory for all VAT-registered businesses in the UK since April 2022. If you are VAT-registered, you must keep digital records and submit VAT returns through HMRC-compatible software. There are no exceptions unless you hold an approved exemption. The old online filing portal is closed.
MTD for VAT is not just about how you submit your return. It governs how you record transactions, how data moves between your software, and how that data reaches HMRC. Getting any one of those steps wrong puts you at risk of penalties even if your VAT figures are correct. This guide covers everything you need to know to stay compliant.
KEY TAKEAWAYS
Making Tax Digital for VAT is mandatory for all VAT-registered businesses since April 2022 in the UK with taxable turnover above £90,000
Digital record-keeping is required for supplies made, supplies received, and your VAT account
You must use compatible software or bridging software to submit VAT returns, the old online filing portal is no longer available to most businesses
Digital links are mandatory between software products. Copy and paste is not acceptable
Exemptions are limited to genuine cases involving insolvency, age, disability, remote location, or religious beliefs
Special VAT schemes such as the Flat Rate Scheme, retail schemes, and margin schemes all continue to operate within MTD for VAT
What is Making Tax Digital For VAT?
Making Tax Digital for VAT is HMRC's requirement for all VAT-registered businesses to keep digital records and submit VAT returns through compatible software. It is not simply a change in how you file.
It covers your entire process, from recording a transaction to submitting a return, and every step must link digitally without manual intervention. The traditional HMRC online portal is no longer available. If you are VAT-registered without an approved exemption, compatible software is your only option.
Who Must Comply With MTD For VAT?
The answer is all VAT-registered businesses and organisations. HMRC completed mandatory sign-up for all existing VAT-registered traders in April 2022. New businesses that register for VAT are automatically enrolled in MTD for VAT unless they qualify for an exemption.
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How to Sign Up for MTD for VAT
All existing VAT-registered businesses were signed up to MTD for VAT by HMRC and no further action is required to register. New VAT registrations are enrolled automatically.
Once you are signed up, you need to:
Choose compatible software or bridging software (see the software section below)
Grant your software authority to access HMRC data on your behalf. This authority lasts for 18 months and can be checked or withdrawn at any time through your HMRC account
Begin keeping your VAT records digitally and submitting returns through software
If you use an accountant or tax agent, they will need an HMRC Agent Services Account to submit returns on your behalf. This is a separate account from the standard HMRC online services for agents account. Your agent can search for compatible software directly on GOV.UK.
MTD for VAT Digital Record-Keeping Requirements
Understanding exactly what you must keep digitally is one of the most important parts of MTD for VAT compliance. HMRC draws a clear distinction between records that must be digital and those that can be kept in another format.
Mandatory Digital Records
Under MTD for VAT, you must keep the following records digitally:
For Supplies you make (sales):
The time of supply (tax point)
The value of the supply, excluding VAT
The amount of VAT on goods and services you supply
For Supplies you receive (purchases):
The time of supply
The value of the supply, excluding VAT
The amount of input tax you are claiming
Your VAT account must show:
Your total VAT sales
Your total VAT purchases
The VAT you owe HMRC
The VAT you can reclaim from HMRC
If you use the VAT Flat Rate Scheme, the flat rate percentage and the turnover it applies to
Any adjustments made to a return
Reverse charge transactions, where you record VAT on both the sale price and the purchase price
If you use a retail scheme:
Your total daily gross takings
If you use the Flat Rate Scheme:
Items on which you can reclaim VAT
What Doesn't Need to Be Digital?
MTD for VAT does not require you to scan or maintain a digital image of every paper invoice or receipt; however, you must still keep the original or an electronic copy of all invoices received for your general records. However, the data from those documents including the VAT amount, the 'time of supply' (tax point), and the 'value of supply' (excluding VAT) must be recorded digitally.
Certain complex calculations can be performed outside your digital records and entered as a single total adjustment, including fuel scale charges, partial exemption calculations, and Capital Goods Scheme adjustments.
You can make journal entries for each of these adjustment types rather than recording every underlying transaction individually.
The Six-Year Rule
All digital VAT records must be kept for at least six years. If you used the VAT One Stop Shop (OSS) scheme or the VAT Mini One Stop Shop (MOSS) scheme, the retention period is ten years.
After you deregister from VAT, you cannot use MTD software to send your final return; instead, you must use your standard VAT online account.
MTD Compatible Software and Digital Links
Software Requirements
For MTD for VAT compliance, you have two software routes available to you. HMRC treats both as equally valid.
Option 1: A compatible software package | Option 2: Bridging software |
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This is a software package that can keep digital VAT records and submit returns directly to HMRC through the API platform. Many accounting software providers offer this functionality. | If you currently use spreadsheets or other software that is not directly compatible with HMRC's systems, you can use bridging software to connect them. Bridging software transmits your VAT data digitally to HMRC's API. When using this route, you must ensure your records are connected to the bridging software via a digital link (such as spreadsheet formulas or file imports). Manual copy and paste' is strictly prohibited. |
Use the RentalBux MTD Software Finder to find the right compatible or bridging software for your business in minutes.
MTD for VAT Exemptions
Automatic Exemptions
You are automatically exempt from MTD for VAT in two situations and do not need to apply:
Insolvency: If you or your business are subject to an insolvency procedure, you are automatically exempt. This applies if you or your business are subject to an insolvency procedure. If you have a Company Voluntary Arrangement or an Individual Voluntary Arrangement, you may choose to send a paper return or use your VAT online account.
Final return after deregistration: If you have cancelled your VAT registration but still need to submit a final return, you are automatically exempt for that final return.
How to submit returns if you are automatically exempt:
If your business is subject to an insolvency procedure, you must submit paper returns unless you have a Company Voluntary Arrangement or an Individual Voluntary Arrangement, in which case you may choose between a paper return or your VAT online account.
If you are submitting a final return following deregistration, you cannot use your MTD software as it will no longer be connected to your registration. You should submit through your VAT online account instead.
Application-Based Exemptions
You can apply for an exemption from MTD for VAT if it is not reasonable or practical for you to use computers, software, or the internet to follow the rules. HMRC will consider applications based on the following:
Age, health condition, or disability: If you are unable to use computers, tablets, or smartphones for the time required to maintain digital records
Remote location: If you cannot access the internet at your home or business premises and it would not be reasonable to access it elsewhere
Religious beliefs: If you are a practising member of a religious society whose beliefs are incompatible with electronic communications or record-keeping
No internet access: If you do not have access to the internet and it is not reasonable or practical for you to obtain it
How to apply:
You must call or write to HMRC to apply. When you do, you will need to provide:
Your VAT registration number
Your business name and address
Details of how you currently send your returns
The reason you believe you qualify for an exemption
If you are applying on behalf of someone else, authorisation from the business
You should continue submitting returns as normal while you wait for HMRC's decision. HMRC will write to you confirming whether your exemption has been granted and will tell you how to submit returns going forward.
HMRC will not grant an exemption simply because: Complying involves time, effort, or cost, provided those are reasonable. HMRC evaluates applications based on whether it is practical for the individual to use computers or the internet. Valid grounds for application include age, health conditions, disability, or where you live.
MTD for VAT in Special Situations
Retail Schemes
If you use a retail scheme, you can record gross daily takings rather than recording each individual transaction separately. Under MTD for VAT this means:
Under MTD for VAT, you can enter your daily totals manually into your digital records from a paper source. However, if you use multiple software products (e.g., a digital POS system and accounting software), they must be connected by a digital link; manual transfer or 'copy and paste' between software is not permitted
You must record daily totals in your digital accounting records
Weekly, monthly, or quarterly totals do not satisfy the requirement. Daily totals are required
Many businesses use retail schemes without fully realising it. If you operate retail sales with a high volume of low-value transactions, it is worth checking whether you are eligible.
Flat Rate Scheme
If you use the Flat Rate Scheme, MTD for VAT applies with some simplified requirements:
You are not required to keep digital records of individual supplies received
The exception to this is capital items costing more than £2,000 including VAT. These must still be recorded digitally
You must continue recording your flat rate percentage and the relevant turnover it applies to
Margin Schemes
If you operate under a margin scheme, for example for second-hand goods, works of art, or antiques, you continue to follow that scheme's rules within MTD for VAT. our digital records must still include the value of the supplies you make and receive, alongside the date of supply. These figures are then used to calculate the VAT due on the margin, which must also be recorded in your digital VAT account.
MTD for VAT Submission Deadlines
MTD for VAT did not change your submission or payment deadlines. The standard deadlines remain:
Quarterly filers: Your return and payment are due one month and seven days after the end of each VAT quarter. For example, a quarter ending 31 March means the return and payment are due by 7 May.
Monthly filers: Returns and payments are due one month and seven days after the end of each monthly period.
Annual accounting scheme: If you use the annual accounting scheme, your return is due two months after the end of your annual accounting period.
Your software will confirm that HMRC has received your return. You will not receive a separate confirmation directly from HMRC. You can view completed returns by signing into your VAT online account.
If you pay by Direct Debit, you do not need to set up a new one. HMRC will send an email and a message in your VAT online account at least three days before taking payment.
MTD for VAT for Agents and Accountants
If you manage VAT returns on behalf of clients, you need to set up the following before you can file under MTD for VAT:
Get compatible software that supports MTD for VAT submissions for agents |
Create an Agent Services Account through GOV.UK. This is a separate account from your standard HMRC online services for agents account and is required specifically for MTD services |
Authorise each client through your Agent Services Account. For new clients, send an authorisation link for them to accept; for existing clients already on your standard account, you must copy them across to your Agent Services Account |
Authorise your software to connect to HMRC's systems before submitting any returns |
Once a client has authorised you, you can manage their VAT details, update business information, print VAT certificates, and submit returns through your agent services account.
Your clients can still view their completed VAT returns, manage payment deadlines, and print certificates by signing into their own VAT online account.
Important
All VAT-registered businesses should now be signed up for MTD for VAT automatically. You no longer need to sign up clients individually. HMRC has completed mandatory enrolment for all existing VAT-registered businesses.
Penalties for Non-Compliance
Failing to comply with MTD for VAT can result in two separate types of penalties: late submission penalties and late payment penalties. These operate independently of each other.
Late Submission Penalties
Since January 2023, HMRC uses a points-based system for late VAT return submissions.
How the Points System Works
Each time you submit a VAT return late, you receive one penalty point. Once your points reach the threshold for your filing frequency, HMRC issues a £200 financial penalty. Every further late return after reaching the threshold results in an additional £200 penalty.
Penalty Thresholds by Filing Frequency
Filing frequency | Points threshold |
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Annual filers | 2 points |
Quarterly filers | 4 points |
Monthly filers | 5 points |
Resetting Penalty Points
Penalty points are not permanent. To have your points reset to zero, you must submit all your returns on time for a set compliance period and ensure all outstanding returns from the previous 24 months have been filed. The length of the compliance period depends on how frequently you file.
VAT Returns Excluded from Late Submission Penalties
Late submission penalties do not apply to:
Your first VAT return after registering for VAT
Your final VAT return after cancelling your VAT registration
One-off VAT returns covering a non-standard period, for example when switching from quarterly to annual filing
Returns from businesses that are subject to an automatic exemption such as those in formal insolvency procedures
Non-Standard Accounting Periods
If HMRC has agreed that you can use non-standard VAT periods, the following thresholds apply:
Period length | Applicable threshold |
|---|---|
Over 20 weeks | 2-point threshold (annual rules) |
Over 8 weeks up to 20 weeks | 4-point threshold (quarterly rules) |
8 weeks or less | 5-point threshold (monthly rules) |
Late Payment Penalties
Late payment penalties operate separately from submission penalties and are based entirely on how many days overdue your payment is.
Late payment penalties apply to:
VAT due on your VAT return
VAT arising from amended or corrected returns
VAT charged following an HMRC assessment
They do not apply to VAT payments on account or instalments under the Annual Accounting Scheme.
How Late Payment Penalties Are Calculated
Days payment is late | Penalty |
|---|---|
Up to 15 days | No penalty |
16 to 30 days | 3% of VAT outstanding at day 15 |
31 days or more | 3% of VAT outstanding at day 15, plus 3% of VAT outstanding at day 30, plus 10% per annum calculated daily from day 31 until paid |
Late Payment Interest
In addition to the penalties above, HMRC charges late payment interest from day 1 of the payment being overdue. This applies even during the first 15 days when no financial penalty is charged. The interest rate is set at the Bank of England base rate plus 4% and changes when the base rate changes.
Example calculation:
A business owes £15,000 in VAT and pays 51 days late.
Penalty at day 16: 3% of £15,000 = £450
Additional penalty at day 31: 3% of £15,000 = £450
Penalty from days 31 to 51: £15,000 x 10% x 21 days / 365 = £86.30
Total penalties: £986.30
Late payment interest would also be charged on top of this from day 1.
Conclusion
MTD for VAT requires every VAT-registered business to keep digital records, use compatible or bridging software, maintain valid digital links, and submit returns through HMRC's API platform. Exemptions are limited and must be applied for.
Special schemes such as the Flat Rate Scheme and retail schemes continue to operate within the MTD framework. Penalties apply for both late submissions and late payments, with interest running from day one.
Frequently Asked Questions
No. HMRC's online VAT return portal is only available to businesses with an approved exemption. All other VAT-registered businesses must file through MTD-compatible software or bridging software.
