Making Tax Digital (MTD) for VAT changed the way VAT-registered businesses keep records and file returns with HMRC. Instead of typing figures into the old online portal, you must now keep digital records and submit your VAT return through compatible software. The rules are not complicated once you understand them, but it is easy to overlook a step and end up with a return that will not submit, or records that fall short of what HMRC expects. This checklist walks through everything you need to get right, from picking software to filing your first return. It sits within our Making Tax Digital and software hub and pairs well with our guide to how to complete a VAT return.
Who MTD for VAT Applies To
MTD for VAT applies to all VAT-registered businesses, whatever your turnover and whether you are a sole trader, partnership or limited company. When the rules first came in they applied only above the VAT registration threshold, but that carve-out has been removed. If you are registered for VAT, you are within scope and must comply from your first full VAT period after registration.
There are a very small number of exemptions, for example where it is not reasonably practical to use digital tools because of age, disability or remoteness, or for religious reasons. Exemption is not automatic; you must apply to HMRC and have it agreed. For almost every business, the practical answer is simple: if you charge VAT, you keep digital records and file digitally.
Choosing Compatible Software
The heart of MTD is compatible software, sometimes called functional compatible software. This is software that can keep your digital records and connect directly to HMRC’s systems through their application programming interface (API) to submit your return. A spreadsheet on its own is not enough unless it is linked to bridging software that can make the submission.
When comparing options, look for software that:
- Is listed by HMRC as compatible with Making Tax Digital for VAT
- Records sales and purchases at transaction level, not just totals
- Calculates your VAT return boxes automatically
- Submits returns and retrieves your VAT obligations and liabilities from HMRC
- Supports your VAT scheme, such as the Flat Rate, Cash Accounting or Margin schemes
If you are still weighing up products, our guide to choosing accounting software covers what to prioritise beyond pure compliance.
Keeping Required Digital Records
MTD sets out a list of records that must be held digitally. Keeping paper invoices in a folder and typing summary figures into software does not meet the rules. You must capture each transaction electronically and store the required data within your software.
The digital records you must keep include:
| Record category | What must be stored digitally |
|---|---|
| Business details | Business name, principal address and VAT registration number, plus any VAT schemes used |
| Supplies made (sales) | Time of supply, net value and the rate of VAT charged |
| Supplies received (purchases) | Time of supply, value and the input VAT you intend to reclaim |
| VAT account | The figures linking your records to the VAT return, including totals and adjustments |
You can still keep the original paper invoice or receipt, but the underlying data must live in your software. Good digital record keeping also makes your bookkeeping cleaner overall, as we explain in our notes on automating your bookkeeping.
Maintaining Digital Links
A digital link is an electronic transfer of data between two pieces of software, with no manual retyping or copy-and-paste in between. This is one of the most misunderstood parts of MTD, yet it is central to compliance.
In practice, if your information passes through more than one program, for example a spreadsheet that feeds bridging software, the connection between them must be a digital link. Acceptable digital links include:
- Linked cells and formulas within or between spreadsheets
- Importing and exporting files such as CSVs between programs
- API transfers and automated data feeds
- Emailing or transferring a file containing the data for import
What is not acceptable is manually re-keying figures or copying and pasting values from one place to another. If you use a single, integrated accounting package, digital links are handled for you automatically; the issue mainly arises in multi-tool setups.
Signing Up With HMRC
Being VAT-registered does not automatically enrol you in MTD for VAT; in most cases you need to confirm you are ready and connect your software. To do this you will need your Government Gateway user ID and password, your VAT registration number and your business details to hand.
The broad sequence is:
- Make sure your compatible software is in place first.
- Sign in with your Government Gateway credentials.
- Confirm your business and VAT details.
- Check the date from which your MTD obligations apply so you do not miss a period.
Take care over timing if you pay by Direct Debit: sign up well ahead of, or just after, a payment is collected so HMRC has the working days it needs to set things up without disrupting collection.
Authorising Your Software
Once you are set up, your software must be authorised to interact with HMRC on your behalf. This is a one-off, secure step where you grant permission for the software to retrieve your VAT obligations and submit returns through HMRC’s API.
You will typically be redirected from your software to a secure HMRC page, asked to sign in with your Government Gateway details and prompted to grant access. The authorisation usually lasts a set period before it needs renewing, and you can withdraw it at any time. Keep your Government Gateway credentials secure, as they are the key to your VAT account.
Filing Your First MTD Return
With everything in place, filing should be straightforward. Before you submit your first MTD VAT return, run through a final check:
- Reconcile your bank and confirm all sales and purchases are recorded
- Review the nine VAT return boxes your software has calculated
- Check the VAT period and figures match your records
- Confirm any scheme adjustments, such as Flat Rate calculations, are correct
- Submit through the software, not the old HMRC portal
Your software sends the return directly to HMRC and shows a confirmation or receipt reference. Keep that reference. If anything looks wrong after submission, do not panic; our guide to correcting VAT return errors explains your options.
Avoiding Common Errors
A handful of mistakes account for most MTD problems. Watch out for:
- Copy-and-paste between tools, which breaks the digital link requirement
- Recording only monthly or quarterly totals rather than individual transactions
- Forgetting to renew the software’s authorisation before a return is due
- Missing the deadline, which is generally one calendar month and seven days after the VAT period ends
- Choosing software that does not support your VAT scheme
Building a simple routine, reconciling regularly and using integrated software removes most of these risks. If your wider digital obligations are growing, it is worth reading our MTD for Income Tax explained guide so you are ready for what comes next.