Making Tax Digital – the next steps for VAT

While MTD for VAT has been mandatory for businesses with a turnover above the £85,000 threshold since 2019, it is being extended to all VAT-registered businesses from 1 April 2022, regardless of their turnover.

This means that even small, voluntarily registered businesses must now keep digital records and use MTD-compatible software to submit their returns. If you are still using manual records or spreadsheets without bridging software, now is the time to choose a digital solution and ensure your team is trained.

The digital link requirement

A core component of MTD is the requirement for 'digital links'. Once data is entered into your software, any transfer or modification of that data must be done digitally. You cannot manually copy and paste figures from a spreadsheet into your filing software. If you use multiple software packages (e.g., a billing system and an accounting system), they must be digitally linked, typically via an API or automated export/import function.

Choosing the right software

For small businesses transitioning to MTD, choosing the right software is critical. Cloud accounting platforms like Xero, QuickBooks, and FreeAgent are fully compliant and offer numerous features beyond simple VAT filing, such as automated bank feeds and digital receipt capture. If you prefer to stick with spreadsheets, you must use HMRC-recognised 'bridging software' to digitally link your spreadsheet to HMRC's systems.

The benefits of going digital

While MTD is a mandatory compliance exercise, it should also be viewed as an opportunity to modernise your business processes. Digital record-keeping reduces the risk of manual errors, saves time on data entry, and provides real-time visibility into your financial position. This allows you to make better business decisions and spend less time on administrative tasks and more time focusing on growth.