Making Tax Digital for VAT is one of the most significant changes HMRC has introduced to the UK tax system in recent years. Yet, despite being live for several years, many VAT registered businesses still do not fully understand how MTD for VAT works, who it applies to, or what HMRC actually expects from them.
Some businesses assume it is just about filing VAT returns online. Others think their accountant or software provider has already taken care of everything. In reality, MTD for VAT affects how VAT records are kept, how figures are transferred, and how returns are submitted, and mistakes can easily lead to penalties or rejected filings.
At Taxaccolega, we regularly deal with VAT registered businesses in Croydon, London, and across the UK who only realise something is wrong when HMRC sends a compliance letter. This guide exists to prevent that situation.
Making Tax Digital for VAT is an HMRC initiative that requires VAT registered businesses to:
● Keep VAT records digitally
● Use MTD compatible software
● Submit VAT returns directly to HMRC through that software
Manual entry of VAT figures into the HMRC VAT portal is no longer allowed for most businesses. The submission must be made via approved MTD VAT software using an MTD VAT login.
Before MTD, VAT returns could be typed manually into HMRC’s online VAT account. Under MTD rules, this option has been removed for most VAT registered businesses. HMRC now requires a digital journey from record keeping to submission.
This means that
● Records of sales and purchases must be kept digitally.
● You can’t copy and paste VAT numbers; they have to be sent digitally.
● You must use MTD for VAT software to file your VAT returns.
Businesses that use spreadsheets must now connect those spreadsheets to HMRC using VAT MTD bridging software.
MTD for VAT was rolled out in stages:
● April 2019: Required for enterprises that are registered for VAT and have taxable sales over the VAT threshold
● April 2022: All enterprises that are registered for VAT, no matter how much they make, are now included.
Since April 2022, almost all businesses in the UK that are registered for VAT are subject to MTD for VAT laws, unless they are specifically exempt.
A lot of people ask this, and the quick answer is no. Most firms have to do MTD for VAT. HMRC only lets people get out of paying taxes in very few cases, such if they are too old, disabled, or don’t have access to the internet.
Businesses must retain some VAT records digitally under MTD standards. These data include:
● The name of the business and its VAT number.
● Used VAT accounting plans
● VAT on buying and selling
● Changes made to VAT numbers
You can keep these records via accounting software, cloud bookkeeping services, or spreadsheets that work with MTD software.
Businesses need to use software that HMRC says works with MTD. This includes:
● Xero, Sage, and FreeAgent are examples of full accounting software.
● Bridging software for companies that use spreadsheets
● Free MTD VAT software for very simple situations
At Taxaccolega, one of the most common mistakes people make while trying to follow MTD rules is picking the wrong software.
Once the VAT numbers are set, the program must send the VAT return straight to HMRC. You don’t use the old VAT portal to submit; you use the MTD VAT login.
If the digital links are broken, HMRC can treat the submission as non compliant, even if the figures are correct.
HMRC requires that VAT data moves digitally from source records to the VAT return. Copying figures manually between systems is not allowed.
Examples of acceptable digital links include:
● Spreadsheet formulas
● Software integrations
● API connections between systems
This rule catches out many businesses who believe spreadsheets alone are enough.
Although HMRC initially took a soft approach, enforcement has increased. Businesses can now face:
● Late filing penalties
● Compliance warnings
● Investigations into record keeping
At Taxaccolega, we often correct MTD setups after HMRC contact has already started, which is not ideal.
MTD for VAT is not just a software issue. It is a compliance issue. Many businesses assume that buying software equals compliance, but that is not always the case.
An experienced MTD VAT accountant helps with:
● Correct MTD VAT registration
● Software selection and setup
● Bridging software configuration
● Ongoing VAT return reviews
● HMRC communication if problems arise
Taxaccolega supports businesses in Croydon, London, and UK wide with full MTD for VAT compliance, from registration to submission and ongoing support.
One of the biggest areas of confusion around Making Tax Digital for VAT is who exactly it applies to. Many businesses still ask whether MTD is only for large companies, or only for those above the VAT threshold, or only for certain sectors. HMRC’s position is actually very clear now, even if the messaging was not always great at the start.
If your business is VAT registered in the UK, then MTD for VAT applies to you in most cases. This includes:
● Sole traders
● Partnerships
● LLPs
● Charities that are VAT registered
Since April 2022, MTD for VAT applies regardless of turnover, which means even businesses voluntarily registered for VAT must comply.
This is where many smaller businesses slip up. They registered for VAT for credibility or client requirements, but never realised MTD rules automatically applied to them.
Being below the VAT threshold does not remove the MTD obligation if the business is VAT registered. HMRC does not differentiate here.
So if a business:
● Has turnover under the VAT threshold
● Is voluntarily VAT registered
● Submits VAT returns
Then MTD for VAT is still compulsory.
At Taxaccolega, this is one of the most common misconceptions we correct for Croydon based sole traders and small service businesses.
HMRC allows very limited exemptions from MTD for VAT. These are not automatic and must be approved. Exemptions may apply where:
● The business owner cannot use digital tools due to age or disability
● There is no reasonable internet access available
● The business is run entirely by a religious order whose beliefs prevent digital record keeping
Even in these cases, HMRC expects formal applications and evidence.
Some businesses had temporary exemptions during early rollout phases, but these are now mostly expired. HMRC’s expectation is full compliance unless exemption is formally granted.
Assuming exemption without confirmation is risky, and we have seen HMRC reject VAT submissions that were made outside MTD without prior approval.
For limited companies that are VAT registered, MTD for VAT is non negotiable. This applies whether the company:
● Trades actively
● Is dormant but still VAT registered
● Uses flat rate VAT schemes
Limited companies often benefit from full accounting software such as Sage MTD for VAT, Xero, or FreeAgent, but the setup must be done correctly.
Sole traders sometimes assume MTD only applies when MTD for Income Tax comes in. That is not correct.
If a sole trader is VAT registered, they must already comply with MTD for VAT, even if they still submit Self Assessment the old way.
This overlap is where confusion tends to build.
Landlords who are VAT registered, often due to commercial property or mixed use property, must also comply with MTD for VAT.
Many landlords still use spreadsheets, which is fine, but only if connected to HMRC using MTD VAT bridging software.
Yes. Being VAT registered does not automatically mean you are signed up for MTD for VAT.
Businesses must:
● Sign up for MTD for VAT via HMRC
● Authorise their chosen MTD VAT software
● Stop using the old VAT portal
Failing to complete the MTD sign up process can cause VAT returns to be rejected.
The process generally involves:
1. Choosing MTD compatible VAT software
2. Creating or accessing the Government Gateway account
3. Signing up for MTD for VAT through HMRC
4. Linking the software to HMRC using the MTD VAT login
5. Waiting for HMRC confirmation before submitting returns
Timing matters here. Signing up too close to a VAT deadline can delay submission.
Taxaccolega handles MTD VAT registration for clients across London and the UK to avoid these timing issues entirely.
HMRC has moved away from warnings and is now enforcing compliance.
Non compliance can lead to:
● Rejected VAT returns
● Late submission penalties
● Points under the VAT penalty system
● HMRC compliance checks
Even businesses that file on time can be penalised if their digital links are broken or submissions are not made via approved MTD software.
MTD for VAT is not just a filing requirement, it is a system requirement. Many businesses have software but still fail HMRC checks.
Taxaccolega supports businesses by:
● Reviewing existing VAT setups
● Registering businesses correctly for MTD for VAT
● Selecting and configuring MTD VAT software or bridging software
● Submitting compliant MTD VAT returns
● Dealing directly with HMRC if issues arise
Whether you are a small business in Croydon or operating UK wide, getting MTD right early saves time, stress, and penalties later.
Take the stress out of UK taxes and accounting today — speak with a top-rated Taxaccolega chartered accountant for personalised advice tailored to your business or personal needs.
