All businesses registered for VAT now need to follow Making Tax Digital for VAT, even if they’re below the VAT registration threshold (currently £90,000).
The MTD for VAT rules say you have to use compatible software for VAT accounting and keep VAT accounting records digitally.
It’s a significant change.
But it’s simply that the government wants to help businesses move into the digital age—with all the benefits.
If you now need to follow MTD for VAT, it’s the perfect opportunity to take advantage of the latest cloud accounting software for your tax accounts. Doing so will make your business much more efficient.
Key takeaways
- Making Tax Digital for VAT applies to VAT-registered businesses unless they are exempt or have applied for exemption.
- The rules mean you need to keep VAT accounting records digitally and use compatible software to submit VAT Returns.
- Using accounting software can reduce manual admin, improve record accuracy, and make VAT Return preparation easier.
- MTD for VAT is also an opportunity to improve wider finance processes, including cash flow visibility, invoice tracking, and record keeping.
What is Making Tax Digital for VAT?
Making Tax Digital for VAT is HMRC’s digital tax programme for VAT-registered businesses.
It requires you to keep VAT records digitally and submit VAT Returns using compatible software, unless HMRC confirms you are exempt.
For businesses that already use spreadsheets, paper records, or manual processes, MTD for VAT can feel like a significant change.
But it can also make day-to-day finance admin easier by reducing duplicated work and keeping VAT information in one place.
If you now need to follow MTD for VAT, it can be a useful moment to review how your business manages tax, bookkeeping, and accounting records.
How can MTD for VAT reduce time spent on taxes?
MTD for VAT can reduce the time you spend on tax admin because your VAT records, calculations, and submissions are managed through compatible software rather than separate manual processes.
For example, there is less need to manually tally VAT input and output amounts by going through paperwork or searching for multiple spreadsheets.
When you issue an invoice or create a purchase order, your accounting software can update your ledgers and keep the VAT record connected to the original transaction.
When it is time to prepare for your quarterly or monthly VAT Return, the figures are already in your accounting system.
You can review the return, make any required adjustments, reconcile the figures, and submit the VAT Return through software that connects to HMRC.
This helps reduce duplicated effort.
It also means your records are kept digitally for the required retention period, which is usually six years.
What this means for your business
- Your VAT information is easier to find when you need it.
- Your records are less dependent on paper files or disconnected spreadsheets.
- Your accountant or bookkeeper can review the figures more easily if they need to make adjustments.
- Your VAT Return process becomes part of regular bookkeeping rather than a separate manual task.
How can MTD for VAT improve accuracy?
MTD for VAT can improve accuracy by reducing manual data entry and helping you keep VAT information connected to the transactions it relates to.
VAT can be complicated, and mistakes can happen when businesses calculate input tax, output tax, or VAT Return figures manually.
Errors can lead to extra work later, and may increase the risk of HMRC penalties if returns are wrong or submitted late.
Software does not remove the need to check your VAT records.
It can only be as accurate as the information you enter.
But because accounting software tracks payments, invoices, purchase orders, and VAT details through the accounting process, it can reduce the risk of figures being missed, copied incorrectly, or entered in the wrong place.
The result is a more consistent VAT process, fewer manual touchpoints, and a clearer audit trail if you need to review how figures were calculated.
Important accuracy point
MTD-compatible software can support accuracy, but you are still responsible for checking your records, applying the correct VAT treatment, and making sure your VAT Return is complete before submission.
How can cloud accounting support mobile finance work?
Cloud accounting software can make VAT and finance tasks easier to manage because your records are stored securely online and can be accessed from different devices with an internet connection.
That means you do not have to wait until you are at your desk to check whether an invoice has been paid, review a supplier bill, or look at your cash flow.
You can keep on top of finance tasks throughout the week rather than saving them all for evenings, weekends, or tax deadlines.
This can be especially useful for small business owners who manage finance around customer work, staff, suppliers, or day-to-day operations.
Examples of mobile-friendly finance tasks
- checking your cash flow position before making a business decision
- reviewing unpaid invoices while you are away from the office
- capturing receipt or invoice information when you receive it
- keeping VAT information up to date before the return deadline.
How can newer accounting technology help with MTD for VAT?
If you are moving to digital records for MTD for VAT, it is worth looking at how your accounting software can support the wider finance work around VAT, expenses, invoices, and cash flow.
Modern accounting software can support tasks such as bank reconciliation, automatic invoice recognition, and receipt capture.
These features can reduce manual entry and help keep your records up to date.
For example, bank reconciliation usually involves matching incoming payments against invoices so you can see what has been paid.
Software can suggest matches based on the information in your bank feed and accounting records, helping you review and confirm them more quickly.
Automatic data capture can also help.
You may be able to photograph or scan receipts and invoices, then allow the software to extract details such as the amount, tax point date, VAT rate, and VAT amount. This helps reduce the risk of paperwork being lost or entered late.
Common mistakes to avoid with MTD for VAT
- Leaving VAT records to the end of the return period instead of updating them regularly.
- Assuming software will fix incorrect VAT treatment automatically.
- Keeping some VAT records digitally but relying on manual re-keying for the final return figures.
- Not checking whether your software is compatible for MTD for VAT submissions.
- Treating MTD as only a compliance task, rather than using it to improve bookkeeping and cash flow visibility.
What should businesses do next?
If your business is VAT registered and needs to follow MTD for VAT, start by reviewing how you currently keep records, prepare VAT Return figures, and submit returns.
- Check whether your accounting software is compatible with MTD for VAT.
- Make sure your VAT accounting records are kept digitally.
- Review how invoices, expenses, receipts, and payments are recorded.
- Check whether any manual steps could create errors or duplicated work.
- Speak to your accountant or bookkeeper if you are unsure how the rules apply to your business.
Final thoughts: efficiency is just the start
ollowing MTD for VAT rules can feel like extra admin at first. But it can also be an opportunity to improve how your business manages records, tax, and everyday finance tasks.
Using compatible software for MTD for VAT can help you reduce manual work, improve visibility over your numbers, and spend less time searching for information when a deadline approaches.
The biggest benefit is not just submitting VAT Returns digitally.
It is building a finance process that gives you more accurate, timely information, so you can make better decisions for your business.
MTD for VAT FAQs
MTD for VAT means Making Tax Digital for VAT.
It is HMRC’s requirement for VAT-registered businesses to keep VAT records digitally and submit VAT Returns using compatible software, unless they are exempt.
MTD for VAT applies to VAT-registered businesses unless they are exempt or have applied for exemption.
If you are not sure whether your business is in scope, check HMRC guidance or speak to your accountant.
Yes. Software can help reduce manual work and support accuracy, but you should still review your records and VAT Return before submission.
Yes. Digital records can help you see what you owe, what customers owe you, and how your cash flow is changing.
That can make finance admin more practical and useful day to day.
You may still be able to use spreadsheets as part of your process, but your final VAT Return submission must use compatible software and follow HMRC requirements for digital records and links.
Editor’s note: This article was first published in September 2021 and has been updated for relevance.
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