Who does Making Tax Digital VAT apply to?
MTD for VAT applies to every VAT-registered business in the UK, without exception by size, income, legal structure or sector. Before April 2022, only businesses above the VAT registration threshold were in scope. Since 1 April 2022, all VAT-registered businesses must comply — including those registered voluntarily below the threshold.
Sole traders, limited companies, partnerships, charities and clubs that are VAT-registered all fall within MTD for VAT. The VAT registration threshold for 2025/26 is £90,000 in taxable turnover over a rolling 12-month period.
What MTD for VAT requires
MTD for VAT requires three things:
Digital record-keeping. VAT records must be held in functional compatible software that HMRC recognises. Required records include the time, value and VAT rate of each supply made, the time, value and input tax of each purchase, and a VAT account showing output tax, input tax and the net position. Records must be retained for six years.
Digital links. If records are held across more than one piece of software, transfers between them must be electronic. Copying a figure from a spreadsheet and typing it into another tool is not a digital link. CSV imports, built-in integrations and API connections qualify.
Software submission. VAT returns must be submitted via your software’s API connection, not by entering figures into the HMRC portal. If you currently log in and type your figures, you are not compliant.
How to sign up for Making Tax Digital VAT
Sign-up is done through your HMRC business tax account. You must have MTD-compatible software ready before you sign up. Log in, navigate to VAT, and select sign up for MTD for VAT. You’ll need your VAT registration number and Government Gateway credentials.
HMRC advises signing up at the end of an accounting period rather than during one. If you were migrated automatically during the 2019/2022 rollout you may already be signed up — check your VAT obligations in your HMRC account.
What are digital records and digital links?
Digital records are VAT data held in software, not on paper or in a format requiring manual transfer. A spreadsheet alone is not functional compatible software — it becomes compliant only when connected to bridging software providing the API link.
The practical test: if a person has to read one screen and type a number into another, that is not a digital link. If the number moves programmatically, it is. Businesses using multiple tools must audit every transfer in the data flow.
Which software works with Making Tax Digital VAT?
HMRC maintains a compatible software list with two categories: full accounting packages that record transactions and submit returns in one product, and bridging software that reads VAT data from your existing spreadsheet and handles the submission step.
For businesses already using cloud accounting, the check is simple: confirm your product appears on the HMRC list and that you submit through it. For spreadsheet users, bridging software is the route to compliance without changing your bookkeeping.
Are any businesses exempt from MTD for VAT?
A small number of businesses can apply for exemption, but the grounds are narrow: a disability preventing computer use, no available internet at the trading location, or other circumstances HMRC accepts as making digital working not reasonably practicable. Advanced age alone is not accepted. Apply directly to HMRC.
Penalties and points for MTD VAT non-compliance
HMRC’s points-based penalty system has applied since January 2023. Each late return earns one point. Quarterly filers hit the £200 financial penalty threshold at four points, annual filers at two, monthly at five. Points stay on your account for 24 months and can only be cleared after a full period of compliance.
Late payment attracts a separate regime: 2% at 15 days, a further 2% at 30 days, then a 4% per annum daily rate. Interest at the Bank of England base rate plus 2.5pp accrues on top. Errors caused by poor record-keeping can attract inaccuracy penalties of 15-100% of the underpaid tax.
Find an MTD accountant for your VAT returns
If your business is not yet set up for MTD for VAT, the right specialist can confirm your position, choose and configure compatible software, complete HMRC sign-up, and handle each quarterly submission going forward.