Making Tax Digital (MTD) for VAT has become an established part of the UK tax system, requiring VAT-registered businesses to maintain digital records and submit VAT returns using compatible software.
The scheme was introduced as the first major stage of HM Revenue & Customs’ (HMRC) wider programme to digitise the tax system. While MTD for VAT initially applied only to VAT-registered businesses with taxable turnover above the VAT registration threshold, the requirements were extended to all VAT-registered businesses from April 2022.
As a result, businesses that are voluntarily registered for VAT, including those with taxable turnover below the VAT registration threshold, are generally required to comply with MTD for VAT.
What is Making Tax Digital for VAT?
MTD for VAT requires businesses to keep certain VAT records digitally and use MTD-compatible software to submit their VAT returns to HMRC.
Under the system, businesses must use compatible software to:
- Maintain digital VAT records
- Calculate VAT liabilities
- Prepare VAT returns
- Submit VAT returns electronically to HMRC
Businesses can no longer use the standard VAT return service on the HMRC website to file their returns if they are required to follow MTD for VAT rules. Instead, returns must be submitted through MTD-compatible accounting software or, in certain circumstances, bridging software.
The rules apply irrespective of whether a business uses a particular VAT accounting scheme.
Is MTD for VAT a legal requirement?
MTD for VAT was introduced in April 2019 for VAT-registered businesses with taxable turnover above the VAT registration threshold.
The requirement was subsequently extended. From 1 April 2022, all VAT-registered businesses became subject to MTD for VAT, regardless of their taxable turnover, unless they were exempt or HMRC granted an exemption.
This means that smaller businesses that voluntarily register for VAT are also generally required to comply with the digital record-keeping and filing requirements.
The VAT registration threshold has changed since MTD for VAT was first introduced, so businesses should not rely on the historic £85,000 figure when assessing their current obligations.
What VAT records must be kept digitally?
Businesses within MTD for VAT must maintain digital records containing the information required by the VAT rules.
Depending on the circumstances and the VAT accounting scheme being used, these records can include:
- The business name
- The business address and VAT registration number
- Details of VAT accounting schemes being used
- The date and value of sales and purchases
- VAT rates applied to transactions
- VAT charged on sales
- VAT incurred on purchases and claimed as input tax
- Information used to calculate the figures included on VAT returns
The precise records required can vary according to the VAT scheme and the nature of the business.
Businesses should also ensure that information is transferred digitally between different parts of their accounting process where the MTD rules require digital links. Where records are maintained outside accounting software, such as in spreadsheets, compatible bridging software may be required to submit the resulting VAT figures to HMRC.
Does MTD for VAT apply to businesses using VAT schemes?
Yes. MTD for VAT generally applies regardless of whether a business uses a VAT accounting scheme.
This can include businesses using schemes such as the Flat Rate Scheme, Retail Schemes and Margin Schemes, although the specific record-keeping requirements can differ.
Businesses using a VAT scheme should therefore check that their accounting software supports both the relevant VAT scheme and MTD filing requirements.
Are any businesses exempt from MTD for VAT?
There are limited circumstances in which a business may be exempt from MTD for VAT.
HMRC may recognise exemptions where it is not reasonably practicable for a business or individual to use digital tools because of factors such as age, disability, location or religious beliefs.
An exemption is not automatically granted simply because a business does not currently use accounting software. Businesses that believe they meet the exemption criteria should contact HMRC and provide the relevant information.
Businesses undergoing insolvency can also have specific arrangements in relation to MTD for VAT, depending on their circumstances.
Where an exemption applies, HMRC will determine how VAT returns should subsequently be submitted. A paper return may be permitted in appropriate cases, but businesses should not assume that they can revert to paper filing without confirmation from HMRC.
How long has MTD for VAT been in operation?
MTD for VAT was first introduced on 1 April 2019, initially affecting VAT-registered businesses with taxable turnover above the VAT registration threshold.
The expansion of the scheme continued over subsequent years. From 1 April 2022, all VAT-registered businesses were brought within the scope of MTD for VAT, subject to exemptions.
The programme forms part of HMRC’s longer-term strategy to make tax administration increasingly digital.
What does MTD mean for the wider UK tax system?
MTD for VAT is only one part of the Government’s wider digital tax programme.
The next major stage is Making Tax Digital for Income Tax, commonly referred to as MTD for Income Tax. This is being introduced in stages for sole traders and landlords with qualifying income above specified thresholds.
From 6 April 2026, MTD for Income Tax applies to individuals with qualifying self-employment and property income above £50,000 a year. The threshold is scheduled to fall to £30,000 from April 2027.
The Government has also outlined further expansion of MTD for Income Tax, while the timetable and detailed requirements for other areas of the tax system, including partnerships and Corporation Tax, remain subject to Government policy and future announcements.
For businesses already complying with MTD for VAT, the move towards wider digital tax reporting means that maintaining accurate digital accounting records is becoming increasingly important.
How can businesses prepare for MTD for VAT?
Businesses required to comply with MTD for VAT should ensure that they use software listed as compatible with HMRC’s requirements.
Businesses that currently rely on paper records or accounting systems that cannot connect to HMRC should review their processes and consider moving to suitable digital accounting software.
Businesses should also check that:
- Their accounting software supports MTD for VAT.
- Their VAT records are maintained digitally.
- Any required digital links between software and records are in place.
- VAT calculations and adjustments are reviewed before submission.
- Staff responsible for VAT understand the business’s digital record-keeping procedures.
- Their Government Gateway and HMRC authorisation arrangements are up to date.
Businesses can also appoint an accountant or tax agent to manage their VAT reporting. An authorised agent can generally submit VAT returns to HMRC on a business’s behalf.
How is an MTD VAT return submitted?
When a VAT return is due, the business or its authorised agent prepares the return using MTD-compatible software.
The software connects to HMRC’s systems, allowing the VAT return to be submitted electronically. Bridging software can also be used in circumstances where VAT calculations are prepared using another digital system, provided the arrangement meets HMRC’s requirements.
Before submitting a return, businesses should check that all relevant transactions, VAT adjustments and reliefs have been correctly accounted for.
The VAT payment deadline remains separate from the digital filing requirement. Businesses must ensure that VAT liabilities are paid to HMRC by the applicable deadline.
What information is needed to sign up?
Businesses signing up to MTD for VAT through HMRC generally need access to their Government Gateway account and relevant VAT registration details.
The registration process can require information such as:
- Government Gateway credentials
- VAT registration number
- VAT registration details
- Business information
- Details from a recent VAT return
- Details of the accounting software being used
An accountant or authorised tax agent can also assist with the MTD registration and filing process.
What should businesses do in 2026?
MTD for VAT is now an established legal requirement for the vast majority of VAT-registered businesses. Companies and self-employed businesses that have not yet moved to compliant digital systems should review their arrangements and establish whether they are meeting the relevant requirements.
The introduction of MTD for Income Tax from April 2026 also means that some sole traders and landlords face additional digital reporting obligations. Businesses affected by both regimes should ensure their accounting systems are capable of supporting their VAT and income tax requirements.
As HMRC continues to expand digital tax reporting, maintaining accurate, accessible and compliant digital records will remain an important part of UK business administration.
