Quick answer: Making Tax Digital (MTD) for VAT is an HMRC rule that requires all VAT-registered businesses whatever their turnover — to keep VAT records digitally and file VAT returns using HMRC-compatible software. The old manual “nine boxes” online portal has been switched off. It has applied to every VAT-registered business since April 2022, and missing deadlines now triggers penalty points and, for late payment, charges starting at 3% of the VAT owed.
If you run a small business and the phrase “Making Tax Digital” makes your eyes glaze over, you are not alone. The good news is that the core idea is simple, and once your bookkeeping is set up correctly, MTD for VAT largely runs in the background. This guide breaks down what the rules actually mean, who they apply to, the deadlines and penalties to watch, and the quickest way to get compliant without buying and learning new software yourself.
What Is MTD for VAT?
Making Tax Digital for VAT is the first phase of HMRC’s wider plan to move the UK tax system online. In plain terms, it means two things: you must keep your VAT records in a digital format, and you must submit your VAT returns through compatible software rather than typing figures into HMRC’s website by hand.
The aim, according to HMRC, is to cut down on the avoidable errors that come from manual record-keeping and re-typing — mistakes that contribute to a multi-billion-pound gap between the VAT that should be collected and what actually is. For your business, the practical effect is that your bookkeeping and your VAT return become part of one connected digital process.
Who Needs to Comply With MTD for VAT?
This is where a lot of older online guides are out of date. Here is the current position:
- Every VAT-registered business must follow MTD for VAT, regardless of turnover. The previous £85,000 turnover threshold for MTD was removed in April 2022.
- The UK VAT registration threshold is currently £90,000. Once your taxable turnover passes this in any rolling 12-month period, you must register for VAT — and MTD applies automatically.
- Voluntarily registered for VAT but under £90,000? MTD still applies to you.
- HMRC now signs up new VAT-registered businesses automatically, so a separate MTD sign-up is rarely needed. You just need compliant software in place before your first return.
This covers sole traders, partnerships, limited companies and VAT-registered landlords alike. If you are unsure whether you should be VAT-registered yet, our VAT registration and returns service can check your position and handle the setup for you.
The Three Rules You Have to Meet
MTD for VAT comes down to three requirements. Get these right and you are compliant.
1. Digital record keeping
Your VAT records must be stored digitally — not on paper, and not as scanned images of paper. That includes your business name and address, VAT registration number, and the VAT details of every sale and purchase. Good bookkeeping is the foundation here; if the records are clean, the return takes care of itself.
2. Functional compatible software
You must file through HMRC-recognised software. This can be a full accounting package (such as Xero, QuickBooks or Sage) or “bridging software” that connects a spreadsheet to HMRC. You can check the official list on HMRC’s find compatible software tool.
3. Digital links
This is the rule that catches small businesses out most often. If your VAT figures pass through more than one system — say a till or sales platform, then a spreadsheet, then your filing tool — the data must move between them by a digital link (an API, a formula, or an imported file). Manually copying and pasting or re-typing totals between systems is not compliant. The “soft landing” period that once allowed manual re-keying ended in April 2021, so there is no grace period left.
MTD for VAT Deadlines
MTD does not change when your VAT is due — only how you file. Most businesses file quarterly, and the standard deadline for both submitting the return and paying is one calendar month and seven days after the end of your VAT period. For example, for a quarter ending 31 March, the return and payment are due by 7 May.
The safest habit is to keep your records up to date throughout the quarter rather than scrambling at the deadline. Late filing and late payment are now penalised separately, as explained below.
MTD for VAT Penalties (2026)
Since January 2023, HMRC uses a points-based system for late returns, and from April 2025 it increased the charges for late payment. There are three things that can cost you.
Late submission — penalty points
Every VAT return filed after its deadline earns one penalty point. When you reach your threshold, HMRC charges a £200 penalty, and another £200 for every late return after that. The threshold depends on how often you file:
| Filing frequency | Points threshold for £200 penalty |
|---|---|
| Monthly | 5 points |
| Quarterly | 4 points |
| Annually | 2 points |
Points can be reset to zero by filing everything on time for a set period (24 months for quarterly filers) and having no outstanding returns. Crucially, filing on time avoids points even if you cannot pay yet — so always submit the return.
Late payment — percentage charges
- Days 1–14: no late-payment penalty (interest still applies — see below).
- Day 15: a penalty of 3% of the VAT still outstanding.
- Day 30: a further 3% of what is still owed (up to 6% combined).
- Day 31 onwards: a second penalty accruing daily at 10% per year until the balance is cleared.
Late payment interest
On top of penalties, HMRC charges interest from the very first day a payment is overdue, at the Bank of England base rate plus 4% (7.75% as of January 2026). Interest is not a penalty, so it cannot be appealed — only paying stops it. If you cannot pay in full, contact HMRC about a Time to Pay arrangement as early as possible.
The pattern is clear: late filing and late payment are more expensive than ever, which is exactly why deadline tracking matters. (For the wider cost of missing tax deadlines, see our guide on what happens if you file your tax return late.)
Never miss a VAT deadline again.
ATB Solutions files your VAT returns under MTD, on time, every quarter — book a free consultation or WhatsApp 07754 165406.
Who Is Exempt From MTD for VAT?
Exemptions are narrow, and you must apply to HMRC — they are not automatic. You may qualify if:
- your age or a disability means you cannot reasonably use digital tools;
- you have genuine religious grounds that prevent you using computers;
- your business is subject to an insolvency procedure; or
- it is otherwise “not reasonably practicable” to comply (for example, no reliable internet in a remote location).
If none of these apply, MTD is mandatory. Do not assume you are exempt without written confirmation from HMRC.
Common MTD for VAT Mistakes Small Businesses Make
- Copy-pasting between spreadsheets — breaks the digital links rule, even if the final figure is correct.
- Keeping paper receipts as the only record — records must be captured digitally.
- Filing on time but paying late — the two penalties are separate; you can still be charged.
- Assuming voluntary registration is exempt — it is not.
- Leaving the return to the last day — errors and missed deadlines multiply under time pressure.
How to Get MTD-Compliant (The Simple Route)
- Confirm your status — check you are VAT-registered and know your filing frequency.
- Choose compatible software — or let your accountant run it for you.
- Move your records digital — set up bookkeeping so every sale and purchase is captured electronically.
- Connect the links — make sure data flows between systems without manual re-keying.
- File and pay on time — every quarter, before the one-month-and-seven-days deadline.
If that sounds like admin you would rather not own, that is exactly what we do.
How ATB Solutions Handles MTD for VAT for You
ATB Solutions is a Birmingham-based accountancy practice supporting sole traders, contractors, landlords and limited companies across the West Midlands. We run your bookkeeping on MTD-compatible software and submit every VAT return digitally on your behalf — so you meet the requirements without buying, learning or maintaining a new system yourself.
Our VAT support sits alongside full bookkeeping, self assessment and year-end accounts, with fixed monthly pricing agreed upfront and every deadline tracked for you. For VAT-registered businesses with staff, our Growing Business package includes monthly bookkeeping, bank reconciliation and quarterly VAT returns filed under Making Tax Digital. See why businesses choose us, explore our VAT return service, or get in touch for a fixed quote.
