How to file a VAT return through Making Tax Digital
Filing a VAT return under Making Tax Digital needs three things: VAT records kept in digital form, MTD-compatible software authorised to talk to HMRC through your Government Gateway account, and a submission made by the deadline — one calendar month and 7 days after the end of your VAT period. The software sends the nine box figures over the MTD API and hands back a receipt with a submission reference.
What you cannot do is type those figures into HMRC's old online VAT form. HMRC closed that route to monthly and quarterly filers in November 2022. Unless you hold a formal exemption, the return has to arrive through software.
The mechanics are straightforward. What catches businesses out is everything around them: what a "digital record" means in law, why copying a correct figure between two spreadsheets can breach the rules, and why filing late is penalised in a completely different way from paying late.
Who MTD for VAT applies to — and the £85,000 myth
MTD for VAT applies to every VAT-registered business, regardless of turnover. There is no turnover test. If you hold a VAT registration number, you are in scope.
This is the most repeated error about the regime. When MTD for VAT launched in April 2019 it covered only businesses with taxable turnover above £85,000, leaving voluntarily registered businesses out. That entry threshold was removed in April 2022. Since then, registration alone is the test.
Two other figures get confused with it:
| Figure | Amount | What it actually does |
|---|---|---|
| VAT registration threshold | £90,000 | You must register once taxable turnover in any rolling 12 months passes this |
| VAT deregistration threshold | £88,000 | You may apply to deregister if turnover falls below this |
| MTD for VAT entry threshold | none | Removed April 2022 — registration alone puts you in scope |
A consultant who registered voluntarily on £40,000 of turnover sits fully inside MTD, with the same digital record and digital link duties as a £5 million wholesaler. If you are near the registration line, our guide to VAT registration thresholds covers the rolling and forward-look tests, and the VAT calculator handles the arithmetic.
MTD for VAT is a separate regime from MTD for Income Tax, which phases in from April 2026 by income level. Being inside one does not put you inside the other.
What legally counts as a digital record
"Keep digital records" does not mean scanning your invoices. It means holding a specific set of data in a form software can read, kept current as you trade.
Designatory data, held once: business name, principal place of business, VAT registration number, and any VAT accounting schemes you use.
For every supply you make:
- The time of supply (the tax point, not the date you sent the invoice)
- The value of the supply, excluding VAT
- The rate of VAT charged
For every supply you receive:
- The time of supply
- The value of the supply, including any VAT you cannot reclaim
- The amount of input tax you will claim
The VAT account is the bridge between your records and your return. It holds output tax due, input tax claimable, and every adjustment or correction that moved a box figure away from the raw transaction total.
Two points are widely misunderstood. First, the invoice image itself does not have to be digital — paper purchase invoices in a folder are fine, provided the transaction data is captured in software. Second, HMRC allows real simplifications: retailers on a retail scheme may record daily gross takings rather than every sale, an invoice covering several VAT rates may be recorded as one entry per rate, and an employee expense claim can be a single total. Raising sales through an invoicing tool rather than a word processor removes most of the problem at source, because the tax point, net value and rate are captured as the invoice is created.
Digital links: the rule that quietly breaks compliance
Once data enters your digital records, every onward movement of it must happen through a digital link until it reaches HMRC. A digital link is any transfer of data between programs, products or applications that happens without manual intervention.
Acceptable digital links include:
- Linked cells and formulas within or between spreadsheets
- Emailing a spreadsheet to an agent who imports it into their software
- Handing over a memory stick holding the data file
- Importing and exporting XML, CSV or similar files
- An API call between two systems
- Automated transfer from a till, e-commerce platform or bank feed
Copy and paste is not a digital link. Neither is retyping. HMRC allowed both during a soft-landing period that ended on 1 April 2021. This is the classic failure: a business exports sales from its e-commerce platform, copies the total into a summary tab, then copies that into the bridging sheet. The figure is right, the return is accurate, and the chain is still broken. A compliance check looks at how the number travelled, not only whether it was correct.
The rule bites hardest where two or three systems were never designed to talk to each other — a till, a spreadsheet of manual adjustments, an accounting package. Every hop between them needs a link.
### Where bridging software is and is not acceptable
Bridging software is legitimate: a small application that reads the nine box figures out of a spreadsheet and posts them to HMRC. Spreadsheets have never been banned.
It works when the spreadsheet holds the full digital records described above and the bridge pulls the box figures from named cells through a digital link.
It fails when the spreadsheet is fed by retyping figures from another system, when box totals are typed into the bridge by hand, or when the spreadsheet is only a summary and the real detail sits in a paper ledger. The submission still succeeds — HMRC's API accepts the numbers — but the record-keeping requirements have not been met, and that surfaces only in a compliance check.
Signing up and authorising your software
Most businesses no longer sign up separately: HMRC migrated the remaining VAT-registered businesses onto MTD during 2022, and new registrations are enrolled automatically. Check your business tax account if you are unsure.
Authorising your software is a genuine step, and it recurs:
- 1Open the VAT area of your software and start the HMRC connection
- 2You are redirected to HMRC's own sign-in page — enter your Government Gateway user ID and password there, never inside the software
- 3Complete HMRC's two-step verification
- 4Grant the software permission to read your VAT obligations and submit returns
- 5You are returned to the software, which confirms the VAT number it is connected to
That authorisation lasts 18 months, then expires and must be granted again. A surprising number of late submissions are an expired grant discovered on deadline day. If your accountant files for you, they connect through their agent services account and you authorise them once as your agent.
Check the VAT number shown after connecting. Businesses running several entities sometimes authorise the wrong one and file against the wrong registration — an error that has to be unpicked with HMRC directly.
Filing your VAT return: step by step
- 1Close the period. Post everything with a tax point inside the period, including supplier invoices that arrived late.
- 2Reconcile the bank. Unreconciled entries are the usual source of missing input tax and duplicated sales.
- 3Check the edge cases. Client entertainment (blocked), car purchases (usually blocked), fuel and mileage, reverse charge purchases, and anything zero-rated or exempt rather than standard-rated.
- 4Review the nine boxes against last quarter. A box that moves 40% without an obvious trading reason is usually a coding error, not a trend.
- 5Post adjustments — fuel scale charges, partial exemption, bad debt relief on debts more than six months overdue — into the VAT account, not by overtyping a box.
- 6Submit through the software and keep the HMRC receipt and submission reference.
- 7Pay separately. Filing does not pay. Direct Debit is collected roughly three working days after the filing deadline; otherwise you must initiate payment so it clears in time.
The deadline for both return and payment is one calendar month and 7 days after the end of the VAT period — a quarter ending 30 June is due by 7 August. Annual accounting and payments-on-account businesses run to different dates; the UK tax deadline calendar lists them.
The nine boxes of a VAT return, explained
| Box | What goes in it |
|---|---|
| 1 | VAT due on sales and other outputs in the period |
| 2 | VAT due on acquisitions of goods made in Northern Ireland from EU member states |
| 3 | Total VAT due — Box 1 plus Box 2 |
| 4 | VAT reclaimed on purchases and other inputs, including Northern Ireland acquisitions |
| 5 | Net VAT to pay or reclaim — the difference between Box 3 and Box 4 |
| 6 | Total value of sales and all other outputs, excluding VAT |
| 7 | Total value of purchases and all other inputs, excluding VAT |
| 8 | Total value of goods dispatched from Northern Ireland to EU member states |
| 9 | Total value of goods acquired in Northern Ireland from EU member states |
Boxes 2, 8 and 9 are nil for most businesses outside Northern Ireland. Boxes 3 and 5 are calculated, so software fills them.
The boxes people get wrong are 6 and 7. Box 6 is not just your standard-rated sales — standard-rated, reduced-rate, zero-rated and exempt supplies all belong there. A bookseller with entirely zero-rated sales reports every pound in Box 6 with nil in Box 1. Box 7 likewise covers all purchases, including zero-rated, exempt and blocked ones, not only those you reclaimed on. Both exclude wages, PAYE, National Insurance, dividends and loan repayments, because none of those are supplies.
Worked example: one quarter, start to finish
A homeware retailer on standard accrual accounting, VAT quarter ending 30 June 2026.
Sales: standard-rated goods £48,000 net, VAT at 20% = £9,600; zero-rated children's clothing £9,000 net, VAT £0.
Purchases: standard-rated stock and overheads £21,300 net with £4,260 recoverable VAT; zero-rated stock and exempt insurance £4,700 net; client entertainment £500 net with £100 of VAT blocked.
| Box | Figure |
|---|---|
| 1 | £9,600 |
| 2 | £0 |
| 3 | £9,600 |
| 4 | £4,260 |
| 5 | £5,340 payable |
| 6 | £57,000 |
| 7 | £26,500 |
| 8 | £0 |
| 9 | £0 |
The entertainment still appears in Box 7 at its net £500 even though none of its VAT reaches Box 4, and the zero-rated clothing lifts Box 6 to £57,000 while adding nothing to Box 1. Both the return and the £5,340 are due by 7 August 2026.
Now suppose the return is filed on time but the money is not paid until 20 September 2026 — 44 days late:
- Days 1 to 15 (8 to 22 August): no penalty, but interest is running
- First penalty: 3% of the £5,340 outstanding at day 15, plus 3% of the £5,340 still outstanding at day 30 = £320.40
- Second penalty: from day 31, accruing daily at 10% per year. £5,340 x 10% x 14/365 = £20.48
- Late payment interest on top, from 8 August until the money clears
A £5,340 bill paid six weeks late costs about £341 before interest. Paying anything at all by day 15, or agreeing Time to Pay, removes most of that.
How your VAT scheme changes what you report
The nine boxes stay the same. What changes is when a transaction counts and how the figures are built.
| Scheme | Eligibility | What changes |
|---|---|---|
| Standard (accrual) | Any business | VAT falls due at the tax point — usually the invoice date, paid or not |
| Cash accounting | Join up to £1.35m turnover; leave above £1.6m | VAT falls due when money moves; helps cash flow and removes the need for bad debt relief |
| Flat Rate Scheme | Join up to £150,000 excluding VAT; leave above £230,000 including VAT | A fixed percentage of VAT-inclusive turnover, with generally no input VAT reclaimed |
| Annual accounting | Join up to £1.35m turnover | One return a year with instalments, due two months after the period ends |
| Margin schemes | Second-hand goods, art, antiques, collectibles | VAT is due on the margin, not the selling price |
Flat Rate Scheme boxes behave unusually. Box 1 is the flat rate percentage applied to gross, VAT-inclusive turnover. Box 4 is normally nil, the exception being capital assets costing more than £2,000 including VAT. Box 6 shows the VAT-inclusive turnover you applied the percentage to, not the net figure.
A management consultancy on the 14.5% rate invoices £30,000 plus £6,000 VAT in a quarter, with £400 of input VAT on overheads:
- Flat Rate: £36,000 x 14.5% = £5,220 payable
- Standard accounting: £6,000 − £400 = £5,600 payable
- Limited cost business at 16.5%: £36,000 x 16.5% = £5,940 payable
The scheme saves £380 a quarter — until the limited cost business test bites. If your goods spend is under 2% of turnover, or under £1,000 a year, you are pushed onto 16.5% and the scheme becomes worse than standard accounting. Service businesses with almost no goods spend are the ones caught. A 1% discount applies in your first year of registration.
Annual accounting removes three filings but not the digital record duty — you still keep records all year and report once. Margin schemes need a stock book showing purchase price, selling price and margin per item; Box 1 carries the VAT on the margin, Box 6 the full selling price less that VAT.
Late submission: how the points system works
The old default surcharge is gone. For VAT periods starting on or after 1 January 2023, each late return earns one penalty point, and nothing is charged until you reach the threshold for your filing frequency.
| Filing frequency | Points threshold | Period of compliance to clear points |
|---|---|---|
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
At the threshold you are charged £200, and a further £200 for every subsequent late submission while you remain there. A quarterly filer late four times pays £200; late a fifth time, another £200.
Points do expire. Below the threshold, an individual point falls away roughly two years after the deadline it relates to. At the threshold they stop expiring individually: you must serve a full period of compliance, filing every return on time throughout, and clear any outstanding returns from the previous 24 months, before the balance resets to zero.
Two things matter. A nil return is still a return, and filing it late earns a point exactly as one showing £40,000 would. And the point is for the submission alone — file on time but pay late and you get no point, only the payment penalties below.
Late payment penalties and interest
Late payment is charged separately and works on days overdue, not points.
| Days overdue | Charge |
|---|---|
| 1 to 15 | No penalty, but interest is running |
| 16 to 30 | First penalty: 3% of the amount outstanding at day 15 |
| 31 or more | 3% of the balance at day 15, plus 3% of the balance at day 30 |
| 31 onwards | Second penalty accruing daily at 10% per year on the outstanding balance |
Late payment interest runs from day one, in addition to the penalties, at the Bank of England base rate plus 4 percentage points, until the balance clears.
The practical consequence: partial payment beats nothing, because both first penalties are calculated on the balance outstanding on those specific days. Clearing most of the debt by day 15 shrinks both. So does a Time to Pay arrangement — proposing one and keeping to it can reduce or remove the penalties, and an arrangement agreed before day 15 is treated as though the debt was settled then. Contacting HMRC before the deadline is worth far more than an explanation afterwards.
Correcting a mistake on a VAT return
Once a return is submitted it cannot be amended. Correction happens one of two ways, depending on the size of the net error — under-declarations netted against over-declarations across all affected periods.
| Net error | Method |
|---|---|
| Under £10,000 | Adjust on your next return |
| £10,000 to £50,000, and no more than 1% of your Box 6 figure | Adjust on your next return |
| £10,000 to £50,000 but more than 1% of Box 6 | Report separately to HMRC |
| Over £50,000 | Report separately to HMRC |
| Deliberate, at any value | Report separately to HMRC |
Separate reporting is done on form VAT652 or through HMRC's online error correction service.
Adjusting on the next return is not the same as quietly changing a number. Record the correction in your VAT account with the date, amount and reason, then adjust the relevant box: a £3,000 under-declared sale from last quarter goes into this quarter's Box 1 as an adjustment, with a note explaining it.
The time limit is four years from the end of the period in which the error occurred. Disclosing a deliberate error voluntarily, rather than waiting to be found, materially reduces the penalty HMRC charges.
Exemption, record retention and deregistration
Exemption from MTD is narrow and must be granted, not assumed. HMRC may exempt you where it is not reasonably practicable to use digital tools because of age, disability, remoteness of location or a comparable reason; where you are subject to an insolvency procedure; or where the business is run entirely by practising members of a religious society whose beliefs are incompatible with electronic communication. Apply through the VAT helpline. Being busy or preferring paper are not grounds. An existing exemption from online VAT filing carried across automatically.
Retention. VAT records must be kept for six years from the end of the period they relate to, and the duty survives deregistration and the closure of the business. Digital records must stay readable throughout, so take a full export whenever you change software — access to an old subscription is not guaranteed.
Deregistration. You may deregister voluntarily once taxable turnover falls below the £88,000 threshold, and must deregister if you stop making taxable supplies or the business ceases. Apply online, usually on form VAT7, then file a final return to the cancellation date. On it you must account for VAT on stock and assets still held on which you reclaimed VAT, if the total comes to more than £1,000. MTD obligations run until the registration is actually cancelled, so a return falling due mid-process still goes through software.
Filing your VAT return with Marchant
Marchant is being built for UK VAT-registered businesses and launches in November 2026. The VAT return is designed to come out of the records themselves rather than being reassembled at quarter end: bank feeds, invoices, bills and expenses land in one ledger, so the data that has to be held digitally is captured as it happens rather than transcribed later. That closes the digital link problem structurally — no export, no summary tab, no copy and paste, because the data never leaves the system.
The VAT return screen shows every box with a breakdown by rate and the transactions behind each figure, so you review before submitting rather than after. The standard accrual scheme is computed directly from the ledger; Cash Accounting and the Flat Rate Scheme can be selected on your workspace but aren't yet reflected in the return's box calculations. Submission is built on HMRC's MTD API; our listing on HMRC's recognised software list is in progress ahead of launch. If you're weighing this against what you use today, see how it compares to FreeAgent.
Our free MTD checker tells you which MTD regimes apply to you, and the features and pricing pages cover what else is planned. If you are also a sole trader or landlord, our MTD for Income Tax guide covers the quarterly update regime starting April 2026.