What are the Making Tax Digital for VAT requirements?

Making Tax Digital (MTD) for VAT requires VAT-registered businesses to keep digital records and submit VAT returns using MTD-compatible software. You can no longer submit VAT returns directly through the HMRC website.

Who must comply?

Since April 2022, MTD for VAT applies to all VAT-registered businesses, regardless of turnover. This includes those who registered for VAT voluntarily with turnover below the £90,000 threshold.

What you need to do:

• Keep digital records of your sales and purchases, VAT charged, and VAT paid on purchases. These records must be maintained in MTD-compatible software.
• Submit VAT returns through your software using HMRC's API. You cannot type figures directly into the HMRC portal.
• Ensure there are digital links between all parts of your VAT record-keeping and your VAT return submission. Manual transfer of data (such as copying and pasting between spreadsheets) is not permitted.

Compatible software options:

Popular MTD-compatible software includes:

• Xero
• QuickBooks
• FreeAgent
• Sage
• Various bridging software packages that work with spreadsheets

Using spreadsheets:

You can still use spreadsheets for record-keeping, but you must use bridging software to submit your VAT return digitally to HMRC. The data must flow digitally from your spreadsheet to HMRC via the bridging software.

Penalties for non-compliance:

HMRC can issue penalties if you fail to keep digital records or submit through compatible software. Since January 2023, a new points-based penalty system has replaced the old default surcharge system for late submissions and late payments.