Making Tax Digital (MTD) for VAT is a government initiative designed to modernise the way VAT is reported and paid. Under MTD, VAT-registered businesses must keep digital records and submit VAT returns using compatible software, replacing manual and paper-based systems.
Making Tax Digital for VAT requires businesses to:
Keep digital VAT records
Use MTD-compatible software to prepare and submit VAT returns
Connect digital records to HMRC through an online service
This digital approach aims to improve accuracy, reduce errors, and streamline compliance.
MTD for VAT applies to most VAT-registered businesses, regardless of turnover. If your business is registered for VAT and files VAT returns, you are required to follow MTD rules unless you qualify for and obtain an exemption.
MTD does not apply to other taxes yet (such as Income Tax or Corporation Tax) unless specified in future legislation.
Under MTD, traditional paper or spreadsheet records are not sufficient on their own. You must keep:
Digital records of sales and purchases
Net VAT due on each VAT return period
A digital VAT account summarising output and input tax
Records must be kept in digital format from the outset and linked to compatible software for onward submission.
To meet MTD requirements, your business must use software that:
Maintains digital VAT records
Prepares VAT return information
Submits VAT returns directly to HMRC via a digital link
Examples include commercial accounting packages, bridging tools that connect spreadsheets to HMRC, or bespoke accounting systems.
HMRC does not provide free MTD software, so businesses must choose a suitable solution that fits their needs.
Once your digital records are in place, VAT returns must be submitted:
Through your MTD-compatible software
Using the digital link to HMRC’s systems
This process replaces manual entry on the HMRC portal and supports real-time reporting and accuracy.
While most VAT-registered businesses must comply with MTD, limited exemptions are available for specific circumstances, such as:
Digital exclusion due to age or disability
Insufficient internet access
Certain financial or geographical barriers
Exemptions must be approved by HMRC and are not automatically granted.
While the shift to digital reporting represents change, it offers several advantages:
Improved accuracy and fewer manual errors
Faster preparation of VAT returns
Better visibility of VAT position throughout the year
Streamlined record keeping and compliance
Stronger integration with accounting systems
For many businesses, MTD also supports broader digital accounting and financial management.
When you use MTD-compatible software, you must retain:
Sales and purchase records
VAT invoices
Supporting documentation for all VAT transactions
A digital VAT account summarising VAT due and reclaimed
Records should be kept for the statutory retention period (normally six years) to support compliance and any HMRC enquiries.
Failure to comply with MTD requirements — such as not using digital records or failing to submit returns digitally — can result in:
Penalties for late or incorrect submissions
Interest on late VAT payments
Increased HMRC scrutiny
Ensuring MTD compliance reduces risk and supports ongoing business health.Implementing MTD in Your Business
Successful implementation typically involves:
Selecting suitable MTD-compatible software
Digitising your VAT records
Training relevant staff on digital processes
Testing submissions before deadlines
Integrating VAT reporting into your wider accounting operations
Applegrow can guide you through each step to make the transition smooth and compliant.
Making Tax Digital for VAT represents a significant change in how VAT obligations are managed. Applegrow supports businesses with:
Choosing and implementing MTD-compatible accounting systems
Training and support on digital record keeping
Preparation and submission of digital VAT returns
Diagnostic review of existing VAT systems and controls
Ongoing compliance and HMRC support
Whether you are new to MTD or reviewing existing systems, Applegrow can help simplify your VAT digital journey.
Contact Applegrow Financial Advisors today for personalised advice and support in implementing digital VAT compliance that works for your business.
