Making tax digital for VAT: what you need to know

Making Tax Digital (MTD) for VAT is now the standard way for VAT-registered businesses in the UK to keep records and submit returns. HMRC has fully transitioned away from paper records for VAT, requiring tradespeople with a turnover exceeding £90,000 to use digital software to remain compliant.

If you are VAT registered, you must keep digital records and use software compatible with HMRC’s systems to submit your VAT returns.

Why is HMRC doing this?

HMRC introduced this system to simplify tax for individuals and businesses, reduce errors, and modernise the tax system. By moving from paper records to a digital-first approach, the process is designed to be more accurate, efficient, and easier to manage in the long run.

How does it affect you?

If you are VAT registered, you are required to follow MTD rules, regardless of your turnover.

If your business turnover is soon to exceed £90,000, you are required by law to register for VAT. Once you are registered, the following steps apply:

• If you are already using accounting software: Ensure your software is MTD-compatible and that you have authorised it to communicate with HMRC. Most mainstream accounting packages are fully compliant and handle the digital submission automatically.
• If you are not using software yet: You need to adopt a compatible software package immediately. You must keep your records (expenditure, income, etc.) digitally within this software.

You can find a list of compatible software providers on Gov.uk.

Best practices for your business

It can be tempting to put off admin, but staying on top of your digital records is the best way to avoid stress. Leaving your VAT submission to the last minute when using new software is a recipe for errors.

• Choose the right tools: Test out a few MTD-compatible software options. Pick one that feels intuitive and easy for you to use on a mobile device while you are out on a job.
• Stay consistent: Keep your records updated monthly. Recording your earnings, receipts, and expenses as you go makes your quarterly or annual VAT return a much faster process.
• Automate: Many modern accounting apps allow you to scan receipts directly via your phone camera and link bank accounts to automatically pull in transactions, saving you significant time on manual entry.

If you’re looking for more help and advice, head to Gov.uk.

Disclaimer: This article is for guidance purposes only. Tax rules and thresholds can change; we recommend consulting with a qualified accountant regarding your specific business circumstances.