Making Tax Digital for VAT: small company checklist

Making Tax Digital for VAT means keeping the required VAT records digitally, connecting the software that handles those records and submitting returns through compatible software. It applies across VAT-registered businesses, including small limited companies registered voluntarily, subject to HMRC’s exemptions. In practice, the director needs a clear route from the transaction record to the submitted return. HMRC says all VAT-registered businesses should now be signed up; you no longer need to sign up yourself. HMRC’s VAT guidance confirms that position, while its record-keeping guidance explains the digital requirements and exemptions.

Who Making Tax Digital for VAT applies to

Being below the VAT registration threshold does not put a registered company outside MTD. VAT-registered businesses with taxable turnover below that threshold have had to follow the rules since 1 April 2022. That includes voluntary registrations. VAT Notice 700/22 sets out this extension.

The registration threshold is taxable turnover of more than £90,000. Cancellation of registration is optional below £88,000, according to HMRC’s VAT thresholds. These figures concern registration; they are not separate entry and exit thresholds for digital bookkeeping.

For an online seller approaching registration, a useful preparation step is to map where sales, purchase documents and bank transactions currently sit. For an already registered company, start with the existing VAT process and identify how its figures reach the filing software.

What digital records means

The digital record is the structured information used for VAT. It is different from the invoice or receipt that supports an entry. A folder of scanned documents and a spreadsheet containing only the final return totals do not, by themselves, demonstrate that the required transaction records are present.

The core digital information includes:

• The business name, principal business address, VAT registration number and VAT accounting schemes used.
• For sales, the time of supply, value excluding VAT and VAT rate.
• For purchases, the time of supply, value excluding VAT and input VAT to be claimed.
• VAT return adjustments and relevant records for reverse charges or particular accounting schemes.

These requirements are explained in VAT Notice 700/22 and HMRC’s digital records checklist.

Ordinary supporting records can generally remain on paper or in electronic form; MTD does not require every original invoice to become a digital image. Some records have specific digital requirements, so use the notice to check the distinction rather than treating every document alike. VAT Notice 700/22 explains the relationship between underlying documents and the electronic account.

For the worked arithmetic example, a £1,440.00 VAT-inclusive sale at 20% contains £240.00 VAT: one sixth of the inclusive amount. When reviewing that entry, compare the gross amount and VAT amount with the source invoice. Keep the supporting document easy to find alongside the digital record.

Digital links: the rule people break without noticing

Where different software products keep VAT records and submit the return, the required data must pass between them digitally. Retyping figures or copying and pasting them between those products is not an acceptable link. HMRC’s record-keeping guidance states this explicitly.

The temporary soft landing period ended for VAT return periods starting on or after 1 April 2021. It is no longer a reason to move totals manually. See the updates to VAT Notice 700/22.

Consider this worked example, where the bank-export spreadsheet forms part of the company’s digital VAT records:

Check the handover itself. Ask the person preparing the return to show which cells, import file or software connection supplies the figures. A process description saying “send the totals to the accountant” leaves that detail unanswered.

For records going into accounting software, the guide to sending records to FreeAgent or QuickBooks describes the digital handover instead of retyping. For bank transactions, importing a bank CSV statement provides a practical starting point for bringing statement data into the workflow.

Software: compatible packages or bridging software

HMRC describes alternative routes: a compatible package that keeps digital records and submits VAT returns, or bridging software that connects non-compatible software, such as spreadsheets, to HMRC. Use its compatible VAT software finder to check the available options.

Start the software discussion with the person who will prepare and submit the return. List the records held in each system and the transfer between them. Then check the proposed setup against that list, including any spreadsheet used outside the main bookkeeping package.

Before relying on a bridge, ask for a demonstration using the actual workbook layout. Check where it reads the return figures and how the underlying records feed those cells. Keep a note of the agreed process so someone covering an absence can follow it without improvising a manual handover.

If an accountant files for you, agree the file format and delivery arrangements in advance. The guide to what is in the accountant package can help organise that discussion. Ask which files support their review and which supply data to their filing software.

Deadlines and penalties

VAT returns are usually submitted every 3 months. The usual VAT return deadline, and payment deadline, is one calendar month and 7 days after the accounting period ends. A return is still required when there is nothing to pay or reclaim. HMRC’s VAT return guidance sets out these rules.

Late-submission penalty points apply to accounting periods starting on or after 1 January 2023. The threshold depends on filing frequency:

Reaching the threshold brings a £200 penalty. Each further late return while at the threshold brings another £200 penalty. These are submission penalties; the table is not a calculation of the consequences of paying VAT late. See HMRC’s late-return penalty guidance.

Worked deadline and penalty example

For the example quarter ending 30 June 2026, the return and payment are due by 7 August 2026. This follows the usual timetable in HMRC’s submission guidance.

The example quarterly filer already has 3 points:

This illustrates the points and penalty rules. The on-time return in the middle does not create a new penalty. The final row assumes the company remains at the threshold; it does not assume that a timely return has cleared its earlier points.

Schemes that change the numbers, briefly

Flat Rate Scheme. The turnover condition for joining is VAT turnover of £150,000 or less, excluding VAT. VAT on purchases cannot generally be reclaimed, except for certain capital assets over £2,000. Check the Flat Rate Scheme guidance before assessing eligibility or how purchase VAT should be treated.

Cash Accounting Scheme. The joining threshold is VAT taxable turnover of £1.35 million or less. Use the Cash Accounting Scheme guidance when discussing the scheme with an accountant, and make the scheme used clear in the bookkeeping handover.

A quarterly routine that keeps you inside the rules

Use this as a practical review checklist alongside the requirements above:

• Gather sales invoices, purchase invoices, receipts and bank records in an organised place.
• Match the supporting documents to the entries being reviewed and flag anything that needs an explanation.
• Review the VAT records for missing information, duplicate entries and unresolved adjustments.
• Follow the MTD digital links through each spreadsheet and software product, checking the actual transfer method.
• Agree who prepares the return, who reviews it and who submits it, especially when an accountant is involved.
• Put submission and payment in the diary as separate tasks, with an internal review ahead of the deadline.
• Keep the reviewed figures, supporting explanations and submission confirmation together for the next review.

Billfetch is not a VAT filing tool; it collects the invoices and receipts behind each VAT figure, matches them to bank lines and sends them on to FreeAgent or QuickBooks digitally, so nothing is retyped. See plans and pricing.

Frequently asked questions

Does Making Tax Digital apply below the VAT threshold?

Yes, if the business is VAT-registered and is not exempt from MTD. Businesses registered below the threshold, including voluntary registrations, came within the rules from 1 April 2022. See VAT Notice 700/22.

Can a limited company still use spreadsheets for VAT?

Yes, with a suitable software setup. HMRC recognises bridging software that connects spreadsheets to its systems, alongside packages that keep records and file directly. Check the compatible software guidance and confirm how the records reach the bridge.

Do I need to sign up for Making Tax Digital myself?

No. HMRC says all VAT-registered businesses should now be signed up and businesses no longer need to do this themselves. Its VAT guidance confirms the current position.

Do I need to submit a VAT return if nothing is due?

Yes, a VAT-registered business must submit its return even when there is no VAT to pay or reclaim. Do not remove the filing task from the diary just because the amount due is nil. See HMRC’s VAT return guidance.

General information, not advice. This describes UK rules at the time of writing and is not advice about your company’s tax position. Check the linked GOV.UK guidance or speak to an accountant about your situation.