MTD for VAT Explained

MTD for VAT launched in April 2019 for businesses above the £85,000 VAT registration threshold and was extended to all VAT-registered businesses in April 2022.

Every UK VAT-registered business must comply, regardless of turnover.Since April 2022 there is no longer a turnover test — if you are registered for VAT, MTD applies. That includes businesses registered voluntarily below the VAT threshold. The only way out is a formal exemption (for example on digital-exclusion grounds), which must be granted by HMRC.

For MTD you must hold your VAT records digitally. For each sale and purchase that means recording the time of supply, the value, and the rate of VAT charged, along with your business details and VAT registration number and the totals that make up each box on the return. These records can live in one accounting package or across linked tools — but they must be digital, not a paper cashbook.

HMRC requires an unbroken digital audit trail from your source records through to the nine boxes of the VAT return. In practice that means figures must flow between systems by a digital link — a formula, an import/export file, or an API — and not be manually re-typed or copied and pasted between spreadsheets. If you use spreadsheets, bridging software provides the compliant link to HMRC.

A wide range of HMRC-recognised software supports MTD for VAT, from full bookkeeping suites with bank feeds and invoicing to lightweight bridging tools that sit on top of a spreadsheet. The right choice depends on how complex your VAT is and whether you want full bookkeeping or just a compliant way to file. Always check a product is on HMRC’s recognised list before committing.

VAT uses a points-based system for late returns. Each late submission earns a point; when you reach the threshold for your return frequency HMRC charges a £200 penalty, with further £200 charges for each subsequent late return. The thresholds are 4 points for quarterly returns, 5 for monthly and 2 for annual.

Paying VAT late is charged separately, with a late payment penalty that increases the longer the tax is outstanding plus interest from the due date. These late-payment rates increased from April 2025, so check the current figures on GOV.UK.

If you are still using the old HMRC VAT portal, you are non-compliant. Choose MTD-compatible software and re-authorise your VAT submissions through it.

Get help setting up MTD for VAT software →

MTD for VAT does not change when your VAT returns are due — you keep your existing VAT periods and deadlines (usually one month and seven days after the period ends). What changes is how you file: instead of typing figures into the old online VAT portal, your return is submitted directly from MTD-compatible software that holds your digital records.

VAT-registered businesses must keep their VAT records digitally — for each sale and purchase, the time, value and VAT rate — and preserve a digital audit trail through to the return. New VAT registrations are signed up to MTD automatically; if you moved across earlier you should already be authorised. If you are still on the old portal, sign up for MTD for VAT and connect compatible software as soon as possible to avoid penalties.