HMRC’s Making Tax Digital programme has reshaped how businesses registered for VAT in the UK keep records and submit returns. If you are still streamlining your compliance process, or wondering whether your system actually meets the requirements, the checklist in this guide covers everything you need to know, step by step.
Making Tax Digital for VAT can be narrowed down to three main obligations:
Digital record-keeping: You must keep a record of each transaction, sales and purchases, in a digital format. Paper invoices do not meet this requirement. At the point of entry or once received, the transactional data must be captured or kept in software.
Digital links throughout the process: Every time data moves between systems, for example from your accounting software to a spreadsheet, that transfer must take place digitally. Copy and paste is explicitly stated as not being considered a digital link. Automated transfers, formula-driven links within a spreadsheet, and importing or exporting via CSV all qualify.
Submission through MTD-compatible software: The VAT return itself has to be submitted directly to HMRC via an API connection. Logging into the old HMRC portal and keying in amounts manually is not allowed.
MTD-compatible software is required to do three things:
HMRC has a searchable list of recognised MTD software products on its website. To check whether your existing tool qualifies, look for the product on HMRC’s list or check the software provider’s own documentation for an explicit statement that it is MTD for VAT compatible or MTD-enabled.
Bridging software is another option if your preferred accounts package does not have a direct API connection. You can use a separate bridging tool that pulls figures from your software and submits them to HMRC. The bridging tool itself should appear on HMRC’s approved list.
Use the checklist below to track your progress from setup all the way through to making a successful submission:
| Step | Action |
|---|---|
| 1 | Register for Making Tax Digital through your Government Gateway account |
| 2 | Choose MTD-enabled VAT software or bridging software from HMRC’s approved list |
| 3 | Authorise your software to connect to HMRC’s MTD service |
| 4 | Ensure all sales transactions are recorded digitally at the point of entry, including the time of supply, value, and VAT rate |
| 5 | Ensure all purchase transactions are recorded digitally, including supplier details and input tax amounts |
| 6 | Verify that any data transfers between systems use digital links only, no manual capturing |
| 7 | Reconcile your digital records against bank statements before the due date for submission of the return |
| 8 | Use your software to calculate the VAT return boxes directly from your digital records |
| 9 | Review the calculated figures |
| 10 | Submit the return to HMRC through your MTD software before the VAT return due date |
| 11 | Save the HMRC confirmation reference for your records |
| 12 | Make any payment due by the payment deadline, usually the same as the submission deadline. Alternative: Direct Debit |
Exemptions from Making Tax Digital are genuinely rare. HMRC recognises three grounds:
“I am below the VAT registration threshold.” Being below the £90,000 threshold matters only if you are not VAT-registered. If you have registered voluntarily, you are in scope for MTD and must comply.
“I already file online, so I am compliant.” Filing through the old HMRC online portal is not the same as MTD submission. MTD requires an API connection through HMRC-recognised software.
“I use an accountant, so it is their problem.” You remain responsible for compliance. Your agent can submit on your behalf, but you must still maintain digital records in qualifying software.
To apply for an exemption, you write directly to HMRC as there is no online form to complete. HMRC will confirm whether an exemption has been granted in writing, and exemption should not be assumed while waiting for a response.
HMRC’s penalty points regime works as follows: each late submission earns a point, and once you hit a threshold, for example two points for annual filers or four for quarterly filers, a £200 financial penalty applies for each failure thereafter.
The most common recurring mistakes are:
Making Tax Digital for Income Tax Self Assessment, or MTD for ITSA, is the next major step of the programme. From April 2026, self-employed individuals and landlords with qualifying income above £50,000 are required to sign up and file quarterly updates and an end-of-period statement. The initiative aims to ensure accurate tax reporting through compulsory digital record-keeping and submitting returns through MTD-compatible software. The threshold drops to £30,000 in April 2027.
This matters for VAT-registered businesses because many owners are also sole traders or landlords. Running two separate MTD processes for both VAT and income tax, through software that does not integrate them, might cause errors and omissions when reporting.
The most resilient compliance process is one built around a single accounting platform that handles both VAT and income tax, maintains digital links, and connects to HMRC’s API without bridging tools. If your current setup uses multiple disjointed tools, now is a good time to consolidate.
Consider also whether you are on the right VAT regime. The VAT Flat Rate Scheme, for example, simplifies record-keeping for many small to medium-sized businesses and reduces the volume of transaction-level data you need to maintain, which in turn reduces the risk of digital link failures.
Managing MTD compliance alongside your day-to-day operations takes time and attention. VAT IT helps businesses stay compliant, avoid penalties, and build processes that hold up as requirements expand.
Get in touch with our team to find out how we can support your VAT compliance.
1. Does MTD for VAT apply to businesses below the VAT registration threshold?
MTD for VAT applies to all VAT-registered businesses, including those that have registered voluntarily below the £90,000 threshold. Being below the threshold is only relevant if you have not registered for VAT at all. Voluntarily registered entities are fully in scope and must maintain digital records and submit through MTD-enabled software.
2. Can a spreadsheet still be used under MTD and if so, how?
Yes, provided it is connected to bridging software that creates a compliant digital link to HMRC’s API. The spreadsheet handles record-keeping, the bridging software pulls the return figures and submits them. Manual re-entry or capturing of data between the two is not permitted. The bridging software must appear on HMRC’s approved software list.
3. What counts as a digital link under MTD rules?
A digital link is any transfer of data between software programs, products, or applications that does not involve manual capturing, which includes copying and pasting. Examples include automated data imports, formula-linked cells within the same spreadsheet workbook, CSV exports imported into another system, and API connections.
4. What happens if a VAT return is submitted outside of MTD-compatible software?
HMRC treats it as a late or missing submission, triggering a penalty point under the points-based regime. Once a business accumulates enough points, a £200 financial penalty applies for each further failure.
5. Can a business appoint an agent to submit VAT returns under MTD on its behalf?
Yes. An agent, typically an accountant or tax adviser, can be authorised to file MTD VAT returns on behalf of a business through their own Agent Services Account. The business is still responsible for maintaining digital records in compliant software. Appointing an agent does not transfer the obligation for record-keeping to the agent.
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