Making Tax Digital for VAT Explained

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's programme to move tax record keeping and submission to fully digital systems. The goal is to reduce errors that arise from manual data entry and to give both HMRC and taxpayers a more accurate real-time picture of tax liabilities. MTD is being rolled out in phases, starting with VAT and now extending to income tax.

Under MTD for VAT, VAT-registered businesses must keep their VAT records in digital form and submit VAT returns through software that connects to HMRC's API. Manual submission via the old online portal (Government Gateway) is no longer permitted for VAT-registered businesses that fall under MTD.

Who must comply with MTD for VAT

MTD for VAT was introduced in two phases. From April 2019, businesses with taxable turnover above the VAT registration threshold (at that time £85,000, now £90,000) were required to comply. From April 2022, the requirement was extended to all VAT-registered businesses, including those that had voluntarily registered below the threshold.

In practice, this means that if you are VAT-registered for any reason, you must comply with MTD for VAT. There is no longer a turnover-based exemption. Very limited exemptions exist for businesses that HMRC has specifically approved, such as those where it is not reasonably practicable to use digital tools due to disability, age, remoteness of location, or religion, but these are applied individually and are not automatic.

What digital records must you keep

HMRC specifies that the following information must be kept digitally for MTD for VAT purposes:

• Your business name, address, and VAT registration number
• The date of supply and date of issue of each supply
• The value of each supply, net of VAT
• The VAT rate applied to each supply
• The VAT amount on each supply
• The VAT accounting scheme used (standard, flat rate, cash accounting, etc.)
• Details of any adjustments made to the VAT return

These records must be kept for at least six years. Keeping records digitally in invoicing software such as Tidybill satisfies this requirement, because the software stores all invoice data permanently and makes it accessible at any time.

How to submit a VAT return under MTD

To submit your VAT return under MTD, you must use software that is authorised by HMRC to connect to the MTD VAT API. When you authorise the software, it connects to your HMRC account and submits your VAT figures directly. You no longer enter them manually into the Government Gateway.

There are two main approaches. The first is to use end-to-end accounting or invoicing software that maintains your digital records and submits directly to HMRC. The second is to use a spreadsheet for your records and connect a piece of bridging software that reads the nine boxes from the spreadsheet and sends them to HMRC via the API. Both are acceptable to HMRC provided the digital link between the data and the submission is maintained without manual re-keying.

Tidybill maintains digital records of all your invoices and the VAT they contain. Export your VAT summary from Tidybill for each accounting period and use an HMRC-approved bridging tool to submit. Full direct MTD VAT submission from within Tidybill is on the product roadmap.

MTD for Income Tax Self Assessment

Making Tax Digital is not limited to VAT. HMRC is introducing MTD for Income Tax Self Assessment (MTD for ITSA) in a phased rollout. The requirement will apply to self-employed individuals and landlords as follows:

• From April 2026: those with total gross income from self-employment and property exceeding £50,000
• From April 2027: those with total gross income exceeding £30,000

Under MTD for ITSA, affected individuals must submit quarterly updates of their income and expenses to HMRC using compatible software, followed by an annual end-of-period statement and a final declaration. The current Self Assessment return will be replaced by this process. HMRC has published guidance on the gov.uk website, and the requirements will be phased in over several years.

Even if you are not yet required to comply with MTD for ITSA, keeping your income and expense records digitally from the start in software like Tidybill means the transition will be straightforward when the time comes.

Digital links and the no-manual-keying rule

One of the key requirements of MTD is that there must be a digital link between each stage of the record-keeping and submission process. A digital link means that data is transferred electronically, without anyone typing the figures again from one system to another. Copying a number from a spreadsheet and typing it into a different spreadsheet is not a digital link. However, copying and pasting (using standard software functions) is considered a digital link by HMRC during the current soft-landing period.

In practice, the safest approach is to use software that handles the entire process end to end, or to export data from your invoicing system and import it into your accounting or bridging software without re-typing anything.

For a detailed look at UK VAT invoice requirements, see the VAT invoices guide. For late payment rules, see the late payment interest guide.