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Making Tax Digital for VAT: 19 key questions answered

Looking for clear answers on Making Tax Digital for VAT? This guide explains what MTD for VAT means, who it applies to, what records you need to keep, how to submit returns, and what to do if you need help filing.

Published 30 July, 202611 min read Share

Making Tax Digital for VAT is HMRC’s system for requiring VAT-registered businesses to keep VAT records digitally and submit VAT Returns using compatible software. 

If your business is VAT-registered, MTD for VAT is likely to apply to you. 

Key takeaways 

• Making Tax Digital (MTD) for VAT is mandatory for all VAT-registered businesses unless HMRC has granted an exemption.  

• You must keep VAT records digitally and submit VAT Returns using MTD-compatible software.  

• Understanding the rules, deadlines and digital record-keeping requirements can help you stay compliant and avoid penalties.  

• This guide answers 19 common questions about MTD for VAT, from exemptions and digital records to filing returns and meeting HMRC requirements. 

Here’s what we’ll cover:

1. What is Making Tax Digital for VAT?

Making Tax Digital for VAT means using software to keep and maintain VAT accounting records, create VAT Returns, and send VAT Returns to HMRC. 

It means you can no longer submit VAT Returns via the HMRC website in the way you may have done before MTD.  

You need to use MTD-compatible software instead. 

Your accountant can still submit VAT Returns on your behalf, but your VAT accounting records still need to be kept digitally.  

You must keep your VAT accounting records for at least six years, or longer for some VAT schemes. 

2. When will the scope of MTD for VAT expand?

In April 2022, MTD for VAT expanded to all VAT-registered businesses, including businesses that were voluntarily registered for VAT. 

Before that, MTD for VAT was a legal requirement only for VAT-registered businesses over the VAT registration threshold. 

3. Is Making Tax Digital for VAT compulsory?

Yes. MTD for VAT is a legal requirement for all VAT-registered businesses, regardless of turnover, unless HMRC has granted an exemption. 

Before 1 April 2022, businesses had to comply with MTD for VAT rules if their taxable turnover exceeded the VAT threshold. 

4. Is Making Tax Digital only for VAT?

No. MTD started with VAT, but it is part of a wider HMRC programme. 

 MTD for Income Tax has a phased rollout for eligible sole traders and landlords. 

If you are VAT-registered and also affected by MTD for Income Tax, treat the regimes separately. MTD for VAT and MTD for Income Tax have different rules, processes, and reporting requirements.

5. What records do businesses need to keep digitally?

MTD for VAT requires some VAT records to be kept digitally.  

These include your business name, principal place of business address, VAT registration number, and details of any VAT accounting schemes that you use. 

Most businesses will also need to record information for each invoice or supply, including the time and date of supply, the net value excluding VAT, and the VAT rate used to calculate VAT. 

Some businesses may need to keep additional information depending on their VAT scheme and circumstances.  

If you print or handwrite invoices or receipts, you need to transfer the VAT accounting information into your accounting software before submitting your VAT Return.  

Keep the paperwork where you need it for other accounting or record-keeping purposes. 

6. Who does MTD for VAT apply to?

MTD for VAT applies to VAT-registered businesses, regardless of turnover. 

If your business is VAT-registered, MTD for VAT is likely to affect you, and it is not usually possible to opt out unless HMRC agrees that an exemption applies. 

7. Who is exempt from MTD for VAT? 

You can ask HMRC for a digital exemption if it is not practical for you to use computers, software, or the internet. 

Reasons may include age, disability, remote location, religious grounds that prevent use of computers, or another reason why using MTD for VAT is not practical. 

You or your accountant need to contact HMRC to ask for a digital exemption. You are also exempt from MTD for VAT if your business is subject to an insolvency procedure.

8. If I am exempt, how do I file my VAT Returns?

If HMRC agrees that you are digitally exempt, you may be able to file a paper VAT Return, but this is at HMRC’s discretion. 

You or your accountant should contact HMRC to discuss the right filing option for your circumstances.

9. What is the timetable for MTD for VAT?

MTD for VAT became mandatory in April 2019 for VAT-registered businesses and organisations with turnover above the VAT threshold.  

This included sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts, and charities. 

Certain more complex organisations, such as local authorities, public corporations, trusts, and VAT divisions and groups, had a deferred start date and joined MTD for VAT in October 2019. 

VAT-registered businesses under the VAT threshold joined from April 2022. .

10. What is the MTD for VAT deadline? 

The main MTD for VAT deadlines have passed. MTD for VAT became mandatory for all VAT-registered businesses, regardless of turnover, from April 2022. 

If you are VAT-registered now, you should use MTD-compatible software for VAT records and returns unless HMRC has granted an exemption. 

11. What was the soft-landing period?

When MTD for VAT started in April 2019, HMRC gave businesses a soft-landing period that allowed them to continue copying and pasting data for VAT accounting without penalties until April 2020.  

Normally, this was prohibited because of MTD digital linking rules. 

At the beginning of the coronavirus pandemic, HMRC extended the soft-landing period to April 2021. 

That period has ended. A business using MTD for VAT now needs digital links throughout its VAT accounting process. 

According to HMRC, a digital link has two key characteristics: 

• data is transferred electronically between software programs, products, or applications,  

• and the transfer is automated without manual intervention such as copying and pasting by hand. 

12. What should you do to prepare for MTD for VAT?

The key difference between MTD for VAT and older VAT filing processes is that VAT accounting records and VAT Returns must be handled through compatible software. 

If you are already using cloud accounting software, check that the MTD for VAT feature is active and that your VAT data is digitally linked.  

If you use older software, spreadsheets, or manual records, you should check whether your setup can meet MTD for VAT requirements now. 

Practical preparation steps include: 

• checking your VAT registration details,  

• confirming your compatible software,  

• reviewing digital links,  

• agreeing responsibilities with your accountant,  

• and keeping VAT records up to date throughout each VAT period. 

MTD for VAT preparation checklist 

1. Check whether your business is VAT-registered and therefore in scope. 

2. Confirm you are using MTD-compatible software or bridging software. 

3. Make sure VAT records are kept digitally throughout the VAT period. 

4. Check that digital links are in place if data moves between systems. 

5. Agree who will submit VAT Returns—you or your accountant. 

Review deadlines and penalty rules so you do not miss a filing date. 

13. What about VAT special schemes?

MTD for VAT applies if you use VAT schemes offered by HMRC, such as the flat rate, margin, or retail schemes. 

Your digital record-keeping requirements may vary depending on the scheme you use, so check your software setup and HMRC guidance if you are unsure. 

14. How do I register for MTD for VAT?

HMRC says all VAT-registered businesses should now be signed up for MTD for VAT.  

New VAT-registered businesses are signed up automatically unless they are already exempt or have applied for exemption. 

If you are unsure whether your business is set up correctly, check your HMRC account, review your software connection, or speak to your accountant. 

You may need to activate MTD for VAT functionality in your software and connect it using the correct Government Gateway details for your business.ed to activate the MTD functionality in the software, requiring your MTD login details.

15. What information needs to be submitted? 

When setting up or checking your MTD for VAT position, you may need information such as: 

• your Government Gateway ID and password,  

• company VAT number,  

• VAT registration date,  

• postcode for the principal place of business,  

• and details from your most recent VAT Return. 

You also need to know which MTD-compatible software you are using for VAT accounting and VAT Return submission.  software you’re using for your VAT accounting, so you will need to make this decision ahead of time.

16. How do I submit a MTD for VAT Return?

Once your VAT Return date comes around, you file it through the accounting software your business uses, or through bridging software if you calculate your VAT in another tool such as a spreadsheet. 

Your accounting software needs to be MTD for VAT-ready.  

In most software, you will usually create a VAT report or VAT Return and then submit it using the MTD process. 

Any adjustments or reliefs should be applied before you submit the VAT Return to HMRC. 

17. Who can file the MTD for VAT Return?

You can file the VAT Return yourself, or your accountant can file it on your behalf. 

If your accountant files for you, they will use their HMRC Agent Services account and need the right authority to act for your business.  

Discuss this with your accountant before your VAT Return is due.

18. How do I file my VAT Return once I am in MTD for VAT?

If you use Sage Accounting, you can send a VAT Return with MTD for VAT. 

Sage also provides guidance showing the steps required to submit an MTD for VAT Return using Sage Accounting. 

19. What happens if I cannot file my VAT Return once registered?

HMRC introduced a points-based late submission and late payment sanctions system for MTD for VAT in January 2023. 

In summary, missing a submission deadline earns one point.  

Once your number of points exceeds a threshold in a given period, a £200 penalty is applied.  

The threshold depends on how frequently you submit VAT Returns. 

Quarterly submissions have a threshold of four points before the penalty is applied.  

Monthly submissions have a threshold of five points. Annual submissions have a threshold of two points. 

You can find more details in HMRC’s penalties for late submission guidance. 

What this means for your business 

MTD for VAT is not just a different way to press submit. 

It affects how VAT information is recorded, stored, linked, reviewed, and sent to HMRC. 

The most practical way to stay compliant is to keep records digitally during the VAT period, rather than waiting until the return is due.  

This makes it easier to spot missing invoices, check VAT rates, apply adjustments, and work with your accountant if you use one.

MTD for VAT: key requirements at a glance

Requirement	What it means	What to check
Digital records	VAT records must be kept digitally.	Check business details, VAT registration number, invoices, VAT rates, and scheme details.
Compatible software	VAT Returns must be submitted using MTD-compatible software.	Check that your software can connect to HMRC for MTD for VAT.
Digital links	VAT data should move electronically between systems.	Avoid manual copying and pasting where digital links are required.
Exemptions	Some businesses can ask HMRC for exemption.	Contact HMRC if digital records or software are not practical for your circumstances.
Penalties	Late submissions can lead to points and penalties.	Keep VAT Return deadlines visible and agree responsibilities with your accountant.

Need more information on submitting a MTD for VAT tax return? 

Sage Advice has a separate article covering how to submit a Making Tax Digital for VAT tax return.  

Use it if you need a more detailed walkthrough of the submission process. 

Final thoughts on Making Tax Digital for VAT

For most VAT-registered businesses, MTD for VAT is now part of day-to-day VAT compliance. The best approach is to keep records digitally as you go, check your software is properly connected, and make sure the person submitting the VAT Return has the information they need before the deadline. 

If you are unsure whether your process meets MTD for VAT requirements, review HMRC guidance, check your software settings, or speak to your accountant before your next VAT Return is due. 

More Making Tax Digital information

• Making Tax Digital for Income Tax explained 

• MTD for Income Tax: how to switch from Self Assessment 

• How to submit a Making Tax Digital for VAT tax return 

• What is an MTD digital link? 

• HMRC penalties for Making Tax Digital 

Additional MTD for VAT FAQs

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