If you are VAT-registered and unsure whether Making Tax Digital applies to you, or whether you are already doing it correctly, this guide covers what the rules actually require, who they apply to, and exactly what you need to do next. By the end, you will know your compliance status and have a clear set of actions to take.

Why MTD for VAT matters for your business

Making Tax Digital for VAT is not optional. Since April 2022, every VAT-registered business in the UK has been required to keep digital records and submit VAT returns using HMRC-compatible software. That includes sole traders, landlords who are VAT-registered, limited companies, and contractors, regardless of their turnover.

The rules do not just cover how you submit. They also cover how you store records. HMRC requires a digital link between your source data and your VAT return, which means you cannot manually retype figures from a spreadsheet into HMRC’s portal and call it compliant. If your current process involves any of that, you are likely outside the rules.

Where most people go wrong with MTD for VAT

The most common problem is not a deliberate choice to ignore the rules. Most business owners assume their existing process is compliant because it has always worked, or because they have been submitting returns on time. Submitting on time and submitting correctly under MTD are two different things. As real-world cases on UK business forums confirm, even nil returns can be filed incorrectly under MTD, causing HMRC flags that take time to resolve.

Using software that is not MTD-compatible

Some older accounting packages and basic spreadsheet tools do not support the digital submission link that HMRC requires. Logging into the HMRC VAT portal directly to type in your figures is not MTD-compliant, even if it worked before April 2019. You need software that connects directly to HMRC’s API and files on your behalf. Finding a free or non-subscription solution is genuinely difficult, and most businesses end up paying for a monthly software licence, though the cost is usually modest.

Copying figures manually between systems

If you record your income and expenses in one place, then type the VAT totals into another system before submitting, you have broken the digital link that MTD requires. HMRC’s rules are specific: every step from your records to your final return must be connected digitally. Parliamentary scrutiny of MTD noted that small businesses received little clear guidance from HMRC on what a valid digital link actually looks like in practice, which is why this mistake is so common.

What to do: getting MTD for VAT compliant step by step

Getting compliant does not require a complete overhaul of how you run your business. For most sole traders, landlords, and small limited companies, it comes down to three straightforward steps. If you are already using modern bookkeeping software, you may already be most of the way there.

1. Step 1: Check whether your current software is on HMRC’s approved list of MTD-compatible products. Software such as Xero, QuickBooks, FreeAgent, and Sage all support direct MTD VAT submission. If you are using spreadsheets or an older package, you will need either bridging software or a switch to a compatible platform.
2. Step 2: Make sure your VAT records are stored digitally from the point of transaction. This means every invoice, receipt, and adjustment must be captured in your software, not handwritten and then summarised later. HMRC requires the full audit trail to exist digitally, not just the final totals.
3. Step 3: Authorise your software to connect to HMRC’s MTD service. This is a one-time setup within your software’s VAT or tax settings. Once done, your future VAT returns submit directly from the software rather than through the HMRC portal login. Your accountant can do this on your behalf if you have authorised them as your HMRC agent.

If you are already behind, do not wait until your next return. Getting set up mid-quarter is still better than continuing to file outside the rules. David works with VAT-registered clients across Scotland and the UK and can check your current setup on a free call, confirm what needs to change, and handle the HMRC agent authorisation on your behalf.

Costs and what to expect from MTD for VAT

The cost of MTD compliance depends on where you are starting from. If you already use Xero, QuickBooks, or FreeAgent, you may pay nothing extra because MTD submission is built into those platforms. If you are moving from spreadsheets or a non-compatible system, expect to pay roughly PS10 to PS35 per month for a cloud bookkeeping subscription. Some businesses also use bridging software as a lower-cost middle option, which connects a spreadsheet to HMRC directly, typically costing PS5 to PS15 per month. The bigger cost risk is not acting: penalties for non-compliant submissions can exceed the annual cost of the software many times over.

How to get started with MTD for VAT today

The fastest way to resolve MTD uncertainty is to check two things: which software you are currently using and how you are actually filing your returns. Once you know those two facts, you can work out whether any changes are needed. If you would rather have someone check it properly, David offers a free 20-minute call where he can review your situation and tell you exactly where you stand.

• Log into your current accounting or bookkeeping software and look for a VAT or MTD settings section. If there is no option to connect to HMRC’s MTD service, your software is likely not compatible and you will need to switch or add bridging software.
• Book a free call with David at STZ Accounting. Bring your last VAT return and the name of your current software. In 20 minutes, David can confirm whether your process is compliant, what needs to change if not, and what a fully managed VAT return service would cost you on a fixed monthly basis.