Making Tax Digital (MTD) for VAT is HMRC's programme requiring all VAT-registered businesses to keep digital VAT records and submit returns using HMRC-approved software. The old Government Gateway portal — where businesses manually typed figures into an online form — no longer accepts VAT return submissions.
MTD has been mandatory for all VAT-registered businesses since April 2022, with no exemptions based on turnover size. Whether you turn over £91,000 or £9 million, the requirements are identical.
Every VAT-registered business in the UK must comply with MTD for VAT. This includes:
There is no minimum turnover threshold for MTD compliance. If you are on the VAT register, you must use MTD.
Every VAT transaction must be recorded digitally — not in a paper ledger, not in a non-connected spreadsheet. For each supply made and received, you must record:
| Record | What to Capture |
|---|---|
| Time of supply | Date the goods or services were provided |
| Value of supply | The net amount (excluding VAT) |
| VAT rate applied | 20%, 5%, 0%, or exempt |
| VAT amount | The actual VAT charged or paid |
| VAT registration number | Your own, on all sales records |
Business name and address must also be recorded for each customer on sales, and each supplier on purchases.
VAT returns must be submitted digitally through MTD-compatible software. You cannot manually enter figures on GOV.UK. The software reads your digital records and transmits the return data directly to HMRC via their API.
If you use more than one piece of software — for example, a spreadsheet for bookkeeping and bridging software for submission — there must be a digital link between them. Copy-and-paste between systems breaks the digital link and is not compliant. Data must flow digitally from source records to submission.
These handle everything — bookkeeping, invoicing, VAT calculations, and MTD submission in one place:
| Software | Approximate Monthly Cost |
|---|---|
| Xero | £15–£42/month |
| QuickBooks | £12–£35/month |
| FreeAgent | £19/month (free with some business bank accounts) |
| Sage Accounting | £15–£33/month |
| KashFlow | £9–£25/month |
For businesses that want to keep their existing spreadsheet workflow, bridging software transmits data from your spreadsheet to HMRC in the required format. This maintains MTD compliance without changing your bookkeeping process.
| Bridging Software | Approximate Cost |
|---|---|
| VT Accounts | £100/year |
| Absolute VAT Filer | £50–£80/year |
| DataDear | Free–£10/month |
Bridging software is a legitimate MTD solution. HMRC does not require you to use full accounting software — only that a digital link exists from your records to the submission.
The VAT return itself has not changed — it still contains the same nine boxes as before:
| Box | Content |
|---|---|
| Box 1 | VAT due on sales (output VAT) |
| Box 2 | VAT due on acquisitions from EU (post-Brexit, mostly zero) |
| Box 3 | Total VAT due (Box 1 + Box 2) |
| Box 4 | VAT reclaimed on purchases (input VAT) |
| Box 5 | Net VAT to pay or reclaim |
| Box 6 | Total value of sales (net, excluding VAT) |
| Box 7 | Total value of purchases (net, excluding VAT) |
| Box 8 | Total value of goods supplied to EU |
| Box 9 | Total value of goods acquired from EU |
The difference is how these figures get to HMRC — through software, not manual entry.
You can use the VAT Calculator to verify individual figures before they are posted to your return, and the reverse VAT calculator to extract net and VAT figures from gross purchase amounts.
HMRC replaced the old Default Surcharge with a points-based penalty system. It is more lenient for occasional mistakes but progressively harsher for repeated non-compliance.
| Points Accumulated | Consequence |
|---|---|
| 1–3 points | No financial penalty — warning only |
| 4 points | £200 penalty |
| Each further late return | £200 per return |
Points reset after a sustained period of on-time compliance — typically 24 months of clean returns.
| Days Overdue | Penalty |
|---|---|
| 1–15 days | No penalty (pay in full by day 15 to avoid) |
| 16–30 days | 2% of outstanding VAT |
| 31+ days | 4% of outstanding VAT |
| Ongoing | Bank of England base rate + 2.5% interest per annum |
Exemptions are very limited. HMRC may grant an exemption if:
Exemptions must be applied for — they are not automatic. If you believe you qualify, contact HMRC directly.
Excel alone is not MTD-compliant. However, using Excel with bridging software that maintains a digital link to your submission is compliant. The spreadsheet is the record-keeping tool; the bridging software handles the submission.
HMRC issues penalty points for late or non-compliant submissions. At four points, a £200 financial penalty applies. Persistent non-compliance attracts escalating charges. MTD non-compliance can also trigger a VAT inspection.
Yes. MTD applies to all VAT-registered businesses including those on the Flat Rate Scheme. Your FRS calculation is still submitted through MTD-compatible software.
VAT returns are due one month and seven days after the end of your VAT accounting period — usually quarterly. For a quarter ending 31 March, the return and payment are both due by 7 May.