Making Tax Digital (MTD) is HMRC's programme to move all UK tax administration to digital record-keeping and software-based filing. For VAT it is no longer optional: every VAT-registered business, regardless of turnover, must comply.
The MTD timeline
- April 2019: MTD for VAT mandatory for businesses above the £85,000 (now £90,000) threshold.
- April 2022: MTD for VAT extended to all VAT-registered businesses, including voluntary registrations.
- April 2026: MTD for Income Tax Self Assessment starts for sole traders and landlords with qualifying income over £50,000 (£30,000 from April 2027, £20,000 from April 2028).
What MTD for VAT actually requires
- Digital records. Sales and purchase records, VAT rates applied, and adjustments must be kept in digital form — spreadsheet plus "digital links" qualifies, paper records do not.
- MTD-compatible software. Filing must happen through software that connects to HMRC's API. Copying figures from a spreadsheet into the government gateway manually is no longer allowed.
- Digital links. Every transfer of data between records — from invoice to summary to return — must be electronic. Scanning a spreadsheet tab into another file breaks the link; formulas and cell references keep it.
Choosing software
HMRC publishes a list of compatible software: Xero, QuickBooks, Sage, FreeAgent, Crunch and several free options for very small businesses. A bridging tool can keep your existing spreadsheet workflow — it adds the API connection your spreadsheet lacks. Verify the product is listed before buying; "HMRC recognised" marketing language is not the same as MTD-compatible.
MTD for Income Tax (2026)
Sole traders and landlords above the income thresholds must:
- Keep digital business records from 6 April 2026.
- Submit quarterly updates of income and expenses through software (roughly: 5 August, 5 November, 5 February, 5 May).
- Submit an end-of-period statement and final declaration via software instead of a Self Assessment return.
- Choose between maintaining a cash or accrual basis and using simplified expenses where eligible.
Penalties and how to stay safe
- Late filing and late payment under MTD use a points-based system: accumulate enough points for a submission deadline and you receive a £200 penalty, with more for each further failure while points remain.
- Inaccurate returns carry penalties of 0–100% of the tax at stake depending on behaviour (careless vs deliberate).
- A reasonable excuse (software outage, serious illness, HMRC system failure) avoids penalties — document everything.
Practical checklist
- Sign up for MTD using your Government Gateway credentials and get your MTD VAT reference.
- Move invoices and receipts into your chosen software (apps like Dext or AutoEntry photograph receipts and push them in).
- Reconcile the VAT return figures in software against your own workings before submitting.
- Set calendar reminders for quarterly deadlines one month and one week ahead.
Model your quarterly figures with the UK VAT calculator, and read how the £90,000 threshold works if you are approaching registration.