UK VAT returns under Making Tax Digital

Making Tax Digital did not change what a VAT return says. It changed how the numbers are allowed to get there, and that distinction is the whole of the compliance question.

The three requirements

1. Digital records. Prescribed information about supplies made and received must be kept in a digital form.
2. Compatible software. The return must be submitted through software that connects to HMRC directly.
3. Digital links. Where data moves between systems, it must move electronically without manual re-keying.

The first two are usually solved by buying accounting software. The third is where compliance quietly fails.

What breaks a digital link

A digital link is an electronic transfer between systems with no manual intervention.

Reading a total off a spreadsheet and typing it into your submission software breaks it. So does copying a figure from a sales report into a summary sheet. So does any step where a human retypes a number.

What maintains it: an automated export and import, a formula linking cells within or between workbooks, an API connection, or a bridging tool that reads the spreadsheet directly.

Spreadsheets are not prohibited. Manual re-keying is.

A compliant setup that is not expensive

Small businesses often assume MTD requires a full accounting package. It does not.

A workable arrangement is a well-structured spreadsheet holding the digital records, linked by formula to a summary sheet, connected to HMRC through bridging software. That satisfies all three requirements at modest cost.

Full accounting software is better for most businesses for other reasons — reconciliation, invoicing, visibility — but it is a choice rather than a requirement.

The quarterly rhythm

Most businesses file quarterly, with payment due roughly a month and a week after the period ends. Set aside VAT collected rather than treating it as working capital — it is money you are holding on HMRC's behalf, and a business that spends it discovers the fact at the worst possible time.

A separate account for VAT set aside is unglamorous and prevents the single most common cash-flow failure among small VAT-registered businesses.

Keep records to the standard

Records must be retained for the statutory period, digitally, in a form that lets you trace a return figure back to the underlying transaction.

If a query arrives two years later, the question is not whether the total was right. It is whether you can show how it was built. That is the whole reason the digital links requirement exists.

Related guides: The UK VAT registration threshold explained, Making Tax Digital for Income Tax: what changes and UK Corporation Tax: rates, deadlines and payment.

Prove the digital path from invoice to return

Reconcile sales and purchase ledgers to the nine VAT return boxes, then to the accounting period and submission receipt. Where spreadsheets or multiple systems are used, preserve the required digital links rather than manually retyping totals without control. Document adjustments for credit notes, bad-debt relief, imports, reverse charge and partial exemption where relevant.

Before submission, compare VAT payable or repayable with prior periods and investigate unusual effective rates. After filing, confirm the HMRC receipt and separately confirm payment collection or refund. A successful software submission does not prove that a Direct Debit was active or that the bank payment cleared. Lock the period and retain the adjustment journal.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

• VAT registration (HMRC)
• Making Tax Digital for Income Tax (HMRC)

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