MTD VAT Compliance Guide

MTD VAT compliance comes down to three things. First, digital records that are actually digital, and second, software that is properly MTD for VAT compatible rather than a spreadsheet with an export button. Since April 2022, this has applied to every VAT registered business in the UK, voluntary registrations included, with no turnover exemption left standing.

What compliance errors are putting practices at risk under MTD for VAT?

The most common error is not a wrong figure. It’s a broken digital link, where data is copied or retyped between one system and another rather than transferred automatically. HMRC’s own guidance is direct about this. The soft landing period that allowed manual rekeying ended in April 2021, and there’s no further grace period. A digital link means data moves between pieces of software without anyone manually retyping or copying and pasting it across. See MTD for VAT 2026, compliance errors and digital links for more detail on where these breaks tend to happen in practice.

What MTD for VAT compliance errors is HMRC actually finding?

Separately from digital links, HMRC continues to find gaps around how adjustments are treated once figures reach the return. An adjustment made outside the digital chain, corrected by hand after the fact rather than fed back through the software, is still a compliance gap even if the final number submitted turns out to be correct. The rules do not only test the destination figure. They test the path the figure took to get there. See MTD for VAT 2026, compliance errors and HMRC for what HMRC has been focusing on specifically.

What are digital links in MTD for VAT and how do they work?

A digital link is any transfer of data between software programs, products or applications that happens electronically, without manual intervention. Email, moving a file with a USB stick, or an automated API transfer all count as digital links. Manually typing a figure from one system into another does not. Where a spreadsheet is part of the digital record, the formulas and the export into MTD for VAT compatible software must form an unbroken chain, not a summary a person retypes once a month.

A few concrete examples make the distinction clearer. A formula that pulls a total from one tab of a spreadsheet into a summary tab is a digital link. Exporting that summary as a CSV and importing it into bridging software is a digital link. Reading the total off the screen and typing it into a different piece of software is not, even if the figure is copied correctly. The test is not whether the number is right. It is whether a person’s hand was the thing that moved the data from one place to the other.

What records does MTD for VAT actually require a business to keep digitally?

The record keeping requirement is more specific than “keep digital accounts” in general terms. For each supply, MTD for VAT requires a digital record of the time of supply, the value of the supply, and the rate of VAT charged, alongside the business’s own designatory details such as name, address and VAT registration number, and a record of which VAT accounting schemes it uses. This is why a spreadsheet with only monthly totals typically falls short. The requirement sits at the level of the individual transaction, not the period summary, even where the return itself is only submitted quarterly.

What are the most common MTD for VAT mistakes practices should watch for?

Treating a spreadsheet total as the digital record, when the underlying transaction-level detail was never captured digitally in the first place.
Making a manual adjustment after a figure has already left the digital chain, then feeding only the adjusted total back in rather than correcting it within the linked records.
Using bridging software correctly for one client and assuming the same spreadsheet template will be compliant for every client, when the underlying record keeping still varies client to client.
Missing that a change of VAT scheme for a client requires the software’s calculation logic to change with it, not just the figures being entered.

How do you submit a Making Tax Digital VAT return to HMRC?

A VAT return under MTD is submitted through MTD compatible software connected to HMRC by API, not through the old manual HMRC portal. In practice this happens one of two ways. A full accounting platform can hold the digital records and submit directly, which is how BrightBooks handles VAT for practices that keep client records in it, calculating the return according to whichever VAT scheme is assigned to that client’s account. Alternatively, bridging software sits between an existing spreadsheet and HMRC’s system, pulling the figures in and submitting them without anyone retyping them, which matters for clients who are not ready to move off spreadsheets entirely. See how to submit a Making Tax Digital VAT return to HMRC for the step by step process.

What actually makes software MTD compatible for VAT?

MTD or VAT compatible software needs to do two things well:

It needs to keep digital records
It needs to maintain a digital link all the way through to submission

Digital tax software that only handles one half, for instance storing clean records but requiring a manual export and re-entry into a separate filing tool, reintroduces the exact break the legislation is designed to prevent. When evaluating vat digital software, the practical test is whether a figure can be traced from source record to submitted return without a single manual retype anywhere in the chain.

This matters just as much for a practice choosing software for its own client bank as it does for an individual business choosing software for itself. A platform that calculates VAT correctly but still needs someone to copy the final figure into a separate submission tool has not actually solved the compliance problem, it has just moved the manual step later in the process, where it is easier to miss during a busy filing week.

None of this is optional or new legislation still bedding in. MTD for VAT has applied to every VAT registered business since April 2022, and HMRC’s compliance checks have had years to mature. A practice that treats digital links as a box already ticked, rather than something worth checking again whenever a client changes software or workflow, is the practice most likely to find out about a gap the hard way.

Frequently Asked Questions

What are the penalties for MTD VAT submission errors in 2026?

Late submission uses a points based system, with the threshold set by filing frequency.

Filing frequency	Points threshold	What happens at the threshold
Annual	2 points	£200 fixed penalty, repeated for each further late submission
Quarterly	4 points	£200 fixed penalty, repeated for each further late submission
Monthly	5 points	£200 fixed penalty, repeated for each further late submission

Individual points expire after 24 months of compliant filing. Late payment is penalised separately from late submission, with no penalty if payment is made within 15 days of the due date, 2% of the unpaid VAT if still outstanding at day 15, a further 2% at day 30, and a daily rate after that. Interest accrues from the due date at HMRC’s published rate, which moves with the Bank of England base rate rather than staying fixed.

What are digital links in MTD for VAT and how do they work?

A digital link is an electronic transfer of data between software without anyone manually retyping or copying and pasting it. API transfers, automated exports, and even emailing a file all count. Manually typing a total from one system into another does not, and has not been permitted since the soft landing period ended in April 2021.

How do accounting practices manage VAT returns for multiple clients at once?

Each client needs their own MTD compliant digital records, the practice must be authorised as agent for each client individually through HMRC’s agent services account, and software that applies the correct VAT scheme per client removes the need to manually switch calculation logic between clients. See how accounting practices manage VAT returns for multiple clients at once for the fuller picture.

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.