Making Tax Digital for VAT requires every VAT-registered business to keep its VAT records digitally and to file VAT returns through software that connects to HMRC. The digital record-keeping duty sits in regulations 32A to 32C of the VAT Regulations 1995, made under the Finance (No. 2) Act 2017.
Who has to follow MTD for VAT?
Every VAT-registered business, regardless of turnover, since 1 April 2022. It applied first from April 2019 to businesses above the VAT registration threshold, then extended to all the rest. If you are registered for VAT, you are in scope. A narrow exemption exists for businesses HMRC accepts are digitally excluded, for example on grounds of age, disability, or remoteness.
What are the two core MTD requirements?
MTD for VAT comes down to two duties:
- Keep digital records of your sales and purchases, including the VAT on each.
- Submit each VAT return through MTD-compatible software using its connection to HMRC, not by manually typing figures into the old online form.
What counts as a digital link?
A digital link is an electronic transfer of data between two pieces of software with no manual re-keying. Copying a figure by hand from a spreadsheet into your VAT software breaks the chain. Spreadsheets are still allowed if bridging software passes the totals to HMRC automatically. Notice 700/22 sets out which transfers qualify.
What happens if you do not comply?
HMRC runs a points-based penalty system for late VAT returns and payments, and can charge penalties for failing to keep digital records or maintain digital links. Each late submission adds a point; reach the threshold and a fixed penalty follows. Filing on time but on paper, when you are required to use software, still counts as non-compliant.
Primary sources
- VAT Regulations 1995, Regulation 32A — legislation.gov.uk — Digital record-keeping requirement (regs 32A–32C)
- Finance (No. 2) Act 2017, Section 60 — legislation.gov.uk — Primary power for Making Tax Digital
- VAT Notice 700/22: Making Tax Digital for VAT — gov.uk — HMRC rules on digital records and digital links
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