MTD for VAT: The Complete Guide for 2026

Making Tax Digital for VAT: The Complete Guide for 2026

Last updated: February 2026

Making Tax Digital for VAT has been live for nearly seven years now, and every VAT-registered business in the UK must comply with it. All VAT registered businesses — from one-person sole traders to large corporations — must use MTD-compatible software to submit their VAT returns and keep digital records. Yet I still see clients filing through the old HMRC portal, keeping records on paper, or copying figures between spreadsheets without a proper digital link. If any of that sounds familiar, this guide will walk you through exactly what MTD for VAT requires, how to file correctly, and what changes in April 2026 when MTD for Income Tax arrives alongside it.

MTD for VAT in 2026 — where we stand

MTD for VAT rolled out in two stages. From April 2019, businesses with taxable turnover above the VAT registration threshold had to keep digital records and file VAT returns through compatible software. From April 2022, HMRC extended the MTD for VAT rules to all VAT registered businesses, regardless of turnover. Every VAT registered business must now use digital tools to keep VAT records and submit their VAT returns through compatible software.

Since 1 November 2022 (the final compliance deadline after the April 2022 mandate), every VAT-registered business in the UK — whether your turnover is £40,000 or £4 million — must already be using MTD-compatible software to submit VAT returns. There is no opt-out and no exemption based on business size.

One figure that catches people out: the VAT threshold for registration is £90,000 from 1 April 2024. If you are still working on the basis of the old £85,000 figure, you need to update your records. The threshold is based on your taxable turnover in any rolling 12-month period, and once you cross it you must register for VAT — and immediately comply with MTD for VAT.

How to file a VAT return under MTD

Filing a VAT return under MTD is straightforward once you have the right systems in place. Here are the four steps.

Step 1 — Keep digital records

You must maintain your VAT records in digital form throughout the VAT period. This means using software or a spreadsheet to record every transaction as it happens — not writing it down on paper and typing it in at the end of the quarter. Your digital records must include the date, value, and VAT rate of every supply you make and receive.

Step 2 — Use compatible software

Your software must be recognised by HMRC as MTD-compatible. It needs to connect to HMRC’s systems via their API. You must use MTD-compatible software to submit your VAT returns — you cannot simply email a spreadsheet or upload a PDF. Most cloud accounting software packages — Xero, QuickBooks, Sage, FreeAgent — are fully MTD compatible software options. You must use software to keep your business records and submit returns to HMRC. If you prefer spreadsheets, you will need bridging software that connects your spreadsheet to HMRC. Our software comparison tool covers the main options and what each one costs.

Step 3 — Submit via software (not the HMRC portal)

This is where many businesses still go wrong. You must submit your VAT return through your software, not through the HMRC online portal. Even if the portal lets you log in and file, doing so means you are not complying with MTD. Your software calculates the total VAT owed and sends the nine boxes of your VAT return to HMRC via their API. Once submitted to HMRC, the return is processed automatically.

Step 4 — Receive confirmation

After submission, your software will receive a confirmation from HMRC with a unique receipt number. Keep this. It is your proof that the return was filed on time and through the correct channel. Most software displays this on screen and emails it to you automatically.

What records must be kept digitally

HMRC specifies exactly which records must be kept in digital form under MTD for VAT. The mandatory digital records are:

• Your VAT account — a running summary of VAT owed and VAT reclaimable
• Supplies made — every sale you make, including the date, net value, and VAT rate applied
• Supplies received — every purchase with VAT, including the date, net value, and VAT charged
• Time of supply (tax point) — the date the supply is treated as taking place for VAT purposes
• Value of supply — the amount excluding VAT
• Rate of VAT — standard (20%), reduced (5%), or zero (0%)

You do not need to digitise every single receipt or invoice — but you do need the data from those documents in your digital records. Scanning a receipt into a folder does not count unless the relevant figures are captured in your accounting software or spreadsheet.

If you use spreadsheets, they can form part of your digital records, but only if they are linked to your filing software through a digital link. I will cover what that means in the next section.

Digital links requirement for VAT

The digital links requirement is the part of MTD for VAT that causes the most compliance failures. It has been mandatory since April 2021, and HMRC can and does check for it during compliance visits.

A digital link is an automated, electronic transfer of data between software programs or between parts of a combined program. The key rules are:

• No manual re-keying — you cannot type figures from one system into another
• Copy and paste is NOT a digital link — this is explicitly stated in HMRC’s guidance
• Automated transfers only — acceptable methods include API connections, CSV imports, XML transfers, bank feeds, and automated data extraction

In practice, this means if you record transactions in a spreadsheet and then file through bridging software, there must be an automated connection between the two. The bridging software must pull the data directly from the spreadsheet — you cannot copy the totals into a separate form. For a detailed breakdown of what counts as a digital link and how to set one up, read our guide to digital links and record keeping requirements.

How to register for MTD for VAT

If you have recently become VAT registered, you need to sign up for MTD for VAT through HMRC’s online service. The process depends on whether you are registering yourself or your accountant is doing it on your behalf.

To sign up yourself, go to HMRC’s Making Tax Digital for VAT sign-up page on GOV.UK. You will need your VAT registration number, your business email address, and your Government Gateway credentials. Once signed up, you authorise your chosen MTD-compatible software to submit returns on your behalf.

If your accountant handles your VAT filing, they will need an agent services account to manage MTD for VAT on your behalf. This is a separate account from their existing HMRC agent credentials. Your accountant requests authorisation through their agent services account, you approve it, and they can then submit your VAT returns and manage your MTD obligations. If you are unsure whether your accountant is set up for MTD, contact them directly or call the HMRC VAT helpline on 0300 200 3700.

Common VAT MTD mistakes

After working with hundreds of clients through the MTD transition, these are the five mistakes I see most often.

Filing through the HMRC portal instead of software

The HMRC portal still allows VAT-registered businesses to log in and view their account. Some businesses assume that because they can access the portal, they can still file through it. They cannot — at least not compliantly. If HMRC discovers you have been filing through the portal instead of compatible software, you risk penalties. Always submit through your software’s MTD filing feature.

Breaking the digital link chain

This is the most common technical breach. A business keeps records in Excel, then manually types the box totals into bridging software. That manual step breaks the digital link chain. Every transfer of data between systems must be automated — from first entry to final submission.

Wrong VAT period dates

Your software must submit the return for the correct VAT period. If your VAT quarters do not align with calendar quarters — which they often do not — you need to make sure your software is configured with the right period dates. Filing for the wrong period creates mismatches in HMRC’s systems that can trigger compliance checks.

Not claiming eligible input VAT

This is not strictly an MTD mistake, but I see it far more often since MTD made filing more automated. Businesses set up their software, automate the filing, and then forget to check that they are actually claiming back all the VAT they are entitled to. Review your input VAT claims every quarter before you submit.

Missing the filing deadline

VAT returns must be filed and paid by one calendar month and seven days after the end of the VAT period. Miss this deadline and you face a penalty under HMRC’s points-based system — each late submission adds a point, and once you reach the threshold, you receive a financial penalty. You can check all MTD deadlines to stay on track.

Best software for MTD VAT

Choosing the right software is the single most important decision you will make for MTD compliance. Here is a brief comparison of the main options.

All of these are HMRC-recognised for MTD VAT. Xero, QuickBooks, Sage, and FreeAgent also support MTD for Income Tax, which matters if you are a sole trader who will need both from April 2026. Bridging software is the cheapest option but requires you to maintain your own spreadsheet with correct digital links.

For a full side-by-side breakdown including features, pricing tiers, and Income Tax support, use our MTD software comparison tool.

MTD for VAT AND Income Tax — what changes in 2026

From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) begins for sole traders and landlords with qualifying income above £50,000. If you are VAT-registered and your gross self-employment plus UK property income exceeds £50,000, you will need to comply with both MTD for VAT and MTD for Income Tax simultaneously.

Here is what that means in practice:

• Separate obligations — MTD for VAT and MTD for Income Tax are distinct programmes with their own rules, deadlines, and submissions. Complying with one does not satisfy the other.
• Separate submissions — VAT returns are filed quarterly based on your VAT periods. Income Tax updates are filed quarterly based on fixed tax year quarters (April to July, July to October, October to January, January to April). These periods may not align.
• Same software can handle both — Xero, QuickBooks, Sage, and FreeAgent all support both MTD for VAT and MTD for Income Tax. If you are already using one of these for VAT, you can extend it to Income Tax without switching.

For a detailed explanation of how these two obligations overlap, including what happens if you deregister for VAT partway through a tax year, read our guide on how MTD VAT and Income Tax interact.

Worked example

Lisa runs a graphic design business in Leeds. She registered for VAT in October 2023 when her rolling 12-month turnover hit £90,000. She signed up for MTD for VAT when she registered and has been filing VAT returns through Xero since and uses the standard VAT scheme with quarterly periods aligned to calendar quarters.

Her figures for the quarter ending 31 March 2026 are:

• Sales (standard-rated at 20%): £28,000 + £5,600 VAT = £33,600
• Expenses with VAT: £6,200 + £1,240 VAT = £7,440
• Output VAT (Box 1): £5,600
• Input VAT (Box 4): £1,240
• VAT owed to HMRC: £4,360

Lisa reviews the figures in Xero, confirms they match her records, and submits the VAT return through Xero’s MTD filing feature. Xero sends the nine-box return to HMRC via their API and returns a confirmation receipt. Lisa pays the £4,360 by direct debit, which HMRC collects automatically.

Lisa’s gross self-employment income for the 2026/27 tax year is projected to be £112,000. Because this exceeds £50,000, she also falls within MTD for Income Tax from 6 April 2026. She will need to submit quarterly Income Tax updates through Xero in addition to her VAT returns — but Xero handles both, so she does not need to change software. She does need to ensure her Xero account is set up for MTD ITSA and authorised with HMRC separately.

Frequently asked questions

Do I need different software for MTD VAT and MTD Income Tax?

No. Most major accounting packages — including Xero, QuickBooks, Sage, and FreeAgent — support both MTD for VAT and MTD for Income Tax. You can use the same software for both obligations. However, you will need to authorise the software separately with HMRC for each programme, and the submissions are separate.

What if I deregister for VAT — do I still need MTD?

If you deregister for VAT, your MTD for VAT obligation ends. You will need to file a final VAT return covering the period up to your deregistration date. However, if your qualifying income (gross self-employment plus UK property income) exceeds the relevant threshold, you will still need to comply with MTD for Income Tax. The two are entirely independent obligations.

Can I use bridging software for VAT returns?

Yes. Bridging software connects your existing spreadsheet to HMRC’s API, allowing you to file without switching to full accounting software. However, you must maintain a complete digital link from your transaction records through to the filing. You cannot type figures into the bridging software manually — it must pull data directly from your spreadsheet. Popular bridging options include BTCSoftware, Tax Filer, and VitalTax.

What penalties apply for late VAT filing under MTD?

HMRC uses a points-based penalty system for late VAT returns. Each late submission adds one penalty point. When you reach the penalty threshold (which depends on your filing frequency — four points for quarterly filers), you receive a £200 financial penalty. You receive a further £200 for every subsequent late return until you bring your compliance up to date. Late payment of VAT incurs separate penalties based on the amount and number of days late.

Can I be exempt from MTD for VAT?

Most VAT registered businesses cannot opt out of MTD for VAT. The rules apply to all VAT registered businesses regardless of turnover. However, you may be exempt from MTD for VAT if you are digitally excluded — for example, due to age, disability, remoteness of location, or religious objections to using electronic communications. To apply for an exemption, contact the HMRC VAT helpline and explain your circumstances. HMRC assesses each case individually. If granted, you can continue to file your VAT returns through the old HMRC portal until your circumstances change.

I am on the flat rate VAT scheme — does MTD still apply?

Yes. MTD for VAT applies to all VAT-registered businesses, regardless of which VAT scheme you use. This includes the flat rate scheme, cash accounting scheme, annual accounting scheme, and the VAT margin scheme. The filing and digital record-keeping requirements are the same. Your software must still submit the return via HMRC’s API, and you must still maintain digital records with proper digital links.

Sources

• HMRC — Making Tax Digital for VAT
• HMRC — VAT Notice 700/22: Making Tax Digital for VAT
• HMRC — Find software compatible with MTD for VAT
• HMRC — When to register for VAT
• HMRC — Late submission penalties
• HMRC — Making Tax Digital for Income Tax Self Assessment