Making Tax Digital for VAT: What Directors Need to Know

MTD for VAT — the current rules

Since April 2022, all VAT-registered businesses must:

Keep digital VAT records
Submit VAT returns using MTD-compatible software

Manual VAT returns via HMRC's online portal are no longer accepted for VAT-registered businesses. You must use MTD-compatible software that connects directly to HMRC's API.

What counts as digital records?

Digital records for VAT include: the date, description, and VAT amount for each supply made and received; the VAT account (showing input and output tax); and summary totals for each VAT return period. You do not need to scan every invoice — but the key data fields must be digitally recorded.

Bridging software

If you keep records in a spreadsheet, you can use 'bridging software' that connects your spreadsheet to HMRC's API. This allows the VAT return to be submitted digitally without switching to a full accounting package. FreeAgent, Xero, QuickBooks, and Sage all have native MTD for VAT capability.

Penalties for non-compliance

HMRC can issue penalties for: failure to keep digital records, failure to submit via MTD-compatible software, and for late submission and payment (under the new points-based system). The initial approach was 'light touch' but HMRC is now enforcing compliance more actively.

Frequently asked questions

Can I still use a spreadsheet for VAT?

Yes — but only with bridging software that submits the data digitally to HMRC. A spreadsheet alone is not MTD-compliant. You cannot manually type figures into HMRC's website any more.

What if I make an error on a VAT return?

Small errors (net VAT below £10,000 and below 1% of turnover) can be corrected on the next VAT return. Larger errors require a separate voluntary disclosure to HMRC via form VAT652.