What Making Tax Digital for VAT Requires

Since April 2022, all VAT-registered businesses — regardless of turnover — must keep digital VAT records and submit VAT returns through MTD-compatible software. Manual keying of return figures into HMRC's online portal is no longer compliant. The only permitted method is software-to-software submission via HMRC's API.

Digital Records You Must Keep

HMRC requires the following to be maintained in digital form:

Business name, address, and VAT registration number
VAT accounting scheme used
For each supply made: time of supply, value, and rate of VAT charged
For each supply received: time of supply, value, and amount of input tax claimable
Adjustments made to the VAT return

Spreadsheets are permitted only if they are linked to MTD-compatible bridging software that submits data to HMRC. Pure spreadsheet entry without bridging software is non-compliant.

The Digital Links Requirement

All transfers of data between digital records must be made using "digital links" — no manually retyping figures between systems. If your POS system exports a CSV, that CSV can be imported into your accounting software automatically, but you cannot type the totals from the CSV into a different system by hand. The entire chain from transaction to HMRC submission must be digitally linked.

MTD-Compatible Software

HMRC maintains a list of MTD-compatible software at the GOV.UK website. Common options include QuickBooks, Xero, FreeAgent, and Sage. For retailers, the critical requirement is that the software can receive transaction data from your POS digitally — via integration, API, or automated CSV import — and submit VAT returns directly to HMRC.

VAT Return Deadlines Under MTD

VAT returns are still due one month and seven days after the end of each VAT period. If your VAT period ends 31 March, the return and payment are due 7 May. MTD changes the submission method — not the deadlines. However, there is no longer an option to submit by post.

Penalties for MTD Non-Compliance

HMRC's new points-based penalty system (effective January 2023) assigns one penalty point per late submission. Accumulating points above a threshold triggers a £200 fixed penalty, plus additional penalties for continued lateness. MTD technical non-compliance (keeping non-digital records or using non-approved submission methods) is a separate basis for penalties.