Making Tax Digital for VAT: rules, deadlines and penalties

What is Making Tax Digital for VAT?

Making Tax Digital (MTD) is HMRC's programme for moving tax records and returns into software. VAT was the first tax it covered. Under MTD for VAT, the records HMRC calls your "electronic account" must be kept in software, and your VAT Return must be sent from those records through HMRC's Making Tax Digital service. Nobody should retype a figure on the way.

There are two duties: keep the right records digitally, and submit the return from software. The rest of this page covers both, then deadlines, penalties and exemptions.

Who must follow Making Tax Digital for VAT

HMRC states that all VAT-registered businesses should now be signed up for Making Tax Digital for VAT, unless they are exempt or have applied for exemption. Once you are VAT-registered, there is no turnover test. The rules arrived in two stages:

• April 2019: businesses with taxable turnover above the VAT threshold.
• April 2022: smaller VAT businesses below the threshold.

You must register for VAT if your taxable turnover for the last 12 months goes over £90,000, or you expect it to go over £90,000 in the next 30 days. You can choose to register below £90,000. A voluntary registration brings you into MTD for VAT in the same way.

You do not follow the MTD rules if your business is subject to an insolvency procedure, if you have cancelled your VAT registration and are sending your final return, if your business uses HMRC's VAT GIANT service, or if HMRC has granted you an exemption.

Making Tax Digital for VAT checklist

• Confirm you are VAT-registered and not exempt.
• Choose software from HMRC's list: a package that keeps records and submits returns, or bridging software for a spreadsheet.
• Grant the software authority to access your HMRC data. The authority lasts 18 months.
• Keep the required records digitally from the start of each VAT period.
• Link every piece of software digitally. No retyping, and no copy and paste.
• Submit every VAT Return by the deadline, including nil returns.
• Pay so the money reaches HMRC by the same deadline.
• Keep VAT records for at least 6 years.

What digital records you must keep

VAT Notice 700/22 and HMRC's record-keeping guidance set out what must be held digitally. You need a digital record of:

• Your business name, the address of your principal place of business and your VAT registration number.
• Any VAT accounting schemes you use.
• For each sale: the time of supply (the tax point), the value excluding VAT, and the rate of VAT charged.
• For each purchase: the time of supply, the value, and the input tax you will claim.
• Any adjustments you make to a return.
• Reverse charge transactions.
• Your daily gross takings if you use a retail scheme, and the items you can reclaim VAT on if you use the Flat Rate Scheme.

Your VAT account must show your total VAT sales, your total VAT purchases, the VAT you owe HMRC and the VAT you can reclaim. Keep copies of every sales invoice you issue, even ones you cancel, and every purchase invoice. You must keep VAT records for at least 6 years, or 10 years if you use the VAT One Stop Shop scheme or used the Mini One Stop Shop scheme.

Digital links: what counts and what does not

If you use more than one piece of software to keep records and file returns, they must be joined by a digital link. HMRC is clear that you cannot manually transfer data, or copy and paste it, between software. HMRC accepts these as digital links:

• Formulas that link cells in spreadsheets.
• Emailing records.
• Putting records on a portable device to give to your agent.
• Importing and exporting XML and CSV files.
• Downloading and uploading files.
• Automated data transfer and API transfer.

One detail matters if you invoice in a separate tool. VAT Notice 700/22 says VAT information may sit in other software, such as sales invoicing software. If that software is not used to maintain your electronic account, no digital link is required when the data moves into the electronic account. From then on, every transfer must be digital.

Compatible software, bridging software and spreadsheets

HMRC says you must use compatible software to keep your VAT records and file your VAT Returns. You need one of two things:

• A compatible software package that keeps digital records and submits VAT Returns.
• Bridging software that connects non-compatible software, such as a spreadsheet, to HMRC systems.

HMRC's search service, Find software that's compatible with Making Tax Digital for VAT, lists both kinds. When you connect a product, it asks you to grant authority to access your HMRC data. You can check or withdraw that authority at any time. For help using a product, contact the software provider: HMRC only advises on the legal requirements. Our guide to MTD software covers free options and how to choose.

How to file a VAT Return with Making Tax Digital software

1. Pick a product from HMRC's compatible software list. If an agent or accountant files for you, ask them which software they need.
2. Connect the software to HMRC and grant authority when it asks.
3. Record each sale and purchase digitally during the VAT period, or bring them in through a digital link.
4. At the end of the period, check the figures: total sales and purchases, the VAT you owe and the VAT you can reclaim.
5. Correct small errors from earlier returns on this one. You can adjust errors from the past 4 years if the net value is £10,000 or less, or between £10,000 and £50,000 but less than 1% of your total sales. Larger or deliberate errors must be reported to HMRC separately.
6. Submit the return from the software by the deadline, even if the deadline falls on a weekend or bank holiday.
7. Pay so the money reaches HMRC's account by the same deadline.
8. Check in your VAT online account that HMRC has received the return.

VAT return deadlines

The deadline for submitting a VAT Return is usually one calendar month and 7 days after the end of the accounting period. It is also the payment deadline. Most businesses send a return every 3 months, and you must send one even if you have no VAT to pay or reclaim.

Your VAT online account shows your own due dates and when payment must clear. If you use the VAT Annual Accounting Scheme, you can set up an email reminder there for each return.

Penalties for late VAT returns and late payment

For VAT accounting periods starting on or after 1 January 2023, late returns and late payments are penalised separately.

Late returns: penalty points

Each late return earns one penalty point, and that includes nil returns. When you reach the threshold for your accounting period, you get a £200 penalty. You get a further £200 penalty for each later late return while you stay at the threshold.

Below the threshold, points expire on their own. Where the deadline was not the last day of a month, a point expires on the last day of the month 24 months later. At the threshold, points only clear when you complete the period of compliance and have sent every outstanding return for the previous 24 months.

Late payment penalties and interest

Late payment interest runs from the first day a payment is overdue until you pay in full. If you cannot pay, contact HMRC early. An agreed Time to Pay arrangement can mean lower, or no, late payment penalties.

Other penalties

• Up to £400 for sending a paper VAT Return when you are not exempt.
• Up to 100% of any tax under-stated or over-claimed on an inaccurate return.

Exemptions from Making Tax Digital for VAT

You can apply for an exemption if it is not reasonable or practical for you to use computers, software or the internet. HMRC gives these examples: your age, health condition, disability or where you live; a religious objection to using computers; or no access to the internet. HMRC will consider other reasons too. Extra effort, time or cost in moving to software is not enough on its own where HMRC considers it reasonable.

To apply, call or write to HMRC. Give your VAT registration number, your business name and address, how you currently send your return, why you think you are exempt, and authorisation if you are applying for someone else. Keep sending returns as you do now until HMRC's decision letter arrives. If you are exempt, the letter explains how to send your returns.

Making Tax Digital for Income Tax has its own rules

Making Tax Digital for Income Tax applies to sole traders and landlords registered for Self Assessment, based on qualifying income from self-employment and property:

• Over £50,000 in the 2024 to 2025 tax year: from 6 April 2026.
• Over £30,000 in the 2025 to 2026 tax year: from 6 April 2027.
• Over £20,000 in the 2026 to 2027 tax year: from 6 April 2028.

A VAT-registered sole trader above those thresholds is covered by both regimes. Our Making Tax Digital for Income Tax guide for freelancers covers the quarterly updates.

Where Tidybill fits

Tidybill is invoicing and time-tracking software. It is not Making Tax Digital software: it does not connect to HMRC and it does not submit VAT Returns. It covers the invoice side. Each invoice line carries a VAT rate or treatment, and your VAT number prints on the invoice. The Tax Summary report totals output and input VAT for monthly, bi-monthly, quarterly or annual periods and exports to CSV, XLSX or PDF. The accounting export writes Xero and QuickBooks Online sales formats for the software that files your return.

For what a valid invoice must show, see UK VAT invoice requirements. To work out VAT on a price, use the UK VAT calculator. For chasing overdue clients, see the late payment interest guide.

Sources

Checked on 5 October 2026:

• VAT Notice 700/22: Making Tax Digital for VAT
• Keeping VAT records
• Submit a VAT Return
• Penalty points and penalties if you submit your VAT Return late
• How late payment penalties work if you pay VAT late
• Applying for an exemption from Making Tax Digital for VAT
• Find out if and when you need to use Making Tax Digital for Income Tax