MTD for VAT (Making Tax Digital for VAT, sometimes searched as "make VAT digital") is HMRC's requirement that every VAT-registered business keeps its VAT records digitally and files its VAT returns through compatible software that connects to HMRC's systems. It became mandatory for businesses with taxable turnover above £85,000 from April 2019, and for all VAT-registered businesses, whatever their turnover, from their first VAT period starting on or after 1 April 2022. Filing by typing figures into HMRC's website is no longer an option unless you have an exemption.
What MTD for VAT actually requires
The rules sit in regulations 25A and 32A of the VAT Regulations 1995, explained in HMRC's VAT Notice 700/22. In plain terms, three things are required:
- Digital records. Specified VAT records must be kept in software, which the law calls your "electronic account";
- Digital links. Once data is in your software, moving it between programs must be done digitally, not by retyping;
- Filing through software. The return must be sent from software that talks to HMRC through its Application Programming Interface (API).
Which records must be digital
Regulation 32A lists what goes in the electronic account:
- Business details. Your business name, principal place of business, VAT registration number and any VAT accounting schemes you use;
- Each sale. The time of supply (tax point), the value and the VAT rate charged;
- Each purchase. The time of supply, the value and the input VAT you are claiming;
- Adjustments. The total of each type of adjustment or correction for the period, such as a partial exemption adjustment;
- Output split. The value of outputs split between standard-rated, reduced-rated, zero-rated, exempt and outside-the-scope supplies.
Paper invoices still have to be kept as before. MTD changes how the summary records are held, not what evidence you need. There are also relaxations with force of law. For example, petty cash purchases under £50 including VAT can be recorded as one entry, up to £500 per entry.
Digital links in practice
MTD does not require one all-in-one package. A spreadsheet can form part of your records if it is linked to bridging software that submits the return. What matters is the journey. HMRC accepts linked spreadsheet cells, CSV or XML import and export, emailing a spreadsheet for import, and API transfers as digital links. It does not accept "copy and paste" or retyping figures from one program into another.
Calculations you do outside the software, such as a capital goods scheme or partial exemption adjustment, are allowed. You enter the total as an adjustment line.
Who is exempt
You do not have to follow MTD if HMRC is satisfied that:
- It is not practical for you to use digital tools. For example, because of disability or location, such as having no reasonable internet access;
- You are subject to an insolvency procedure;
- Your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with electronic records or communications.
Age alone or unfamiliarity with software may not be enough: HMRC looks at how your circumstances actually affect your ability to keep digital records. You must apply to HMRC, and the decision is given in writing. Exempt businesses file on paper or through their VAT online account, as instructed in their exemption letter.
What happens if you do not comply
- Filing outside MTD. Regulation 25A sets a penalty for a business that should use compatible software but does not. It runs from £100 to £400, depending on annual VAT-exclusive turnover, and is £400 where turnover exceeds £22.8 million;
- Late returns. For VAT periods starting on or after 1 January 2023, each late return earns a penalty point. Once you reach the threshold (2 points for annual, 4 for quarterly, 5 for monthly returns), you are charged £200 for that return and each further late one;
- Errors. HMRC can charge a penalty of up to 100% of any tax under-stated or over-claimed on an inaccurate return.
MTD for VAT is not MTD for Income Tax
MTD for Income Tax is a separate regime with quarterly updates for sole traders and landlords. It started on 6 April 2026 for those with qualifying income over £50,000 in 2024/25, and has its own thresholds and penalties. A business can be in both. Our guide to MTD deadlines covers the Income Tax dates, and our guide to VAT software explains how to choose a compliant product.
The rules are in VAT Regulations 1995, regulation 32A and regulation 25A. HMRC's guidance is VAT Notice 700/22, and the penalty points are explained on GOV.UK.
If your VAT records still rely on rekeying between systems, our Making Tax Digital team can map your digital links and fix the gaps, and our VAT returns service can file for you each period.