Making Tax Digital, or MTD, is the way VAT returns are filed in the UK. All VAT registered businesses must keep digital records and send their VAT returns using compatible software.
What MTD means in practice
Under MTD you must:
- Keep your VAT records in a digital form, not on paper
- Use software that can connect to HMRC
- File each VAT return straight from that software
You can no longer type your figures into the old HMRC website. The return has to come from software that talks to HMRC directly.
Who it applies to
MTD for VAT applies to every VAT registered business, whatever its size. If you are registered for VAT, you file under MTD.
What counts as compatible software
Compatible software is any package HMRC has approved to file VAT returns. This includes well known accounting tools and simpler bridging tools.
| Type of tool | What it does |
|---|---|
| Full accounting software | Records sales and costs, then files the return |
| Bridging software | Links a spreadsheet to HMRC to file the return |
Popular accounting packages such as Xero, QuickBooks, Sage and FreeAgent all support MTD. Choose one that fits the size and type of your business.
[ Infographic: How Making Tax Digital works ]
Brief: a simple flow from digital records, to compatible software, to the VAT return sent to HMRC.
Alt text: Making Tax Digital flow from digital records to software to the VAT return filed with HMRC.
Caption: Records stay digital and flow straight into your VAT return.
Digital links
Your records must join up through digital links. That means data should pass from one place to the next without being retyped by hand. For example, a spreadsheet can feed bridging software, as long as the figures are not copied across manually.
Getting set up
- Pick software that is approved for MTD and suits your business.
- Keep your sales and purchase records in it from the start of your VAT period.
- Connect the software to HMRC.
- File each return from the software by the deadline.
Frequently asked questions
What is Making Tax Digital for VAT? It is the system where VAT registered businesses keep digital records and file VAT returns using software that connects to HMRC.
Does MTD apply to my business? Yes, if you are VAT registered. MTD for VAT applies to all registered businesses.
Can I still use a spreadsheet? Yes, if you link it to HMRC through bridging software. You cannot type the figures into HMRC by hand.
What software works with MTD? Any package HMRC has approved, including Xero, QuickBooks, Sage and FreeAgent, plus bridging tools for spreadsheets.
What is a digital link? A connection that passes data between tools without retyping, so your records join up automatically.