How to File a VAT Return Under Making Tax Digital (MTD)

Since April 2022, all VAT-registered businesses must file their VAT returns through Making Tax Digital (MTD)-compatible software. That means the old method of logging into the HMRC website and entering figures manually is no longer available. If you are still filing that way, you are non-compliant and at risk of a penalty.

This guide explains exactly what MTD for VAT requires, how to choose the right software, and how to file your return correctly — step by step.

What is Making Tax Digital for VAT?

Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system. For VAT, it requires businesses to:

• Keep digital records of their VAT transactions
• Submit VAT returns directly to HMRC via software using HMRC's API
• Maintain a digital link between the source data and the submitted figures

The requirement to keep digital records is as important as the filing itself. HMRC can request evidence that your records are digital and that there is an unbroken digital link from your source transactions to the submitted return — no manual re-keying of totals between spreadsheets.

Bridging Software vs MTD-Compatible Accounting Software

There are two main approaches to MTD VAT compliance:

MTD-compatible accounting software

Software such as Filabl, Xero, QuickBooks, or FreeAgent connects directly to HMRC's MTD API. Your bookkeeping records live inside the software, which calculates your VAT return automatically from your transactions and submits it to HMRC with a single click. This is the simplest and most robust approach.

Bridging software

If you maintain records in a spreadsheet (for example, Excel or Google Sheets), bridging software acts as the connection layer between your spreadsheet and HMRC's API. You enter or import your VAT figures into the bridging tool, which then submits them to HMRC on your behalf.

Bridging software is HMRC-approved as long as there is a digital link — so you cannot type totals from one spreadsheet into another by hand. You must use a formula, a copy-paste link, or a data import to maintain the digital link.

Step-by-Step: How to File Your MTD VAT Return

1. Ensure your business is registered for MTD for VAT. Go to HMRC's Government Gateway and select "Sign up for Making Tax Digital for VAT". You will need your VAT registration number and Government Gateway credentials.
2. Authorise your software. Within your MTD-compatible software, go to the VAT settings and connect it to HMRC via the MTD authorisation flow. This is a one-time step that grants the software permission to submit on your behalf.
3. Keep digital records throughout the quarter. Record all sales and purchases with VAT amounts in your software or digital spreadsheet. Every transaction with VAT must be logged digitally.
4. At the end of the quarter, run the VAT return. Your software will calculate the nine boxes of the VAT return from your digital records. Review each box — particularly Box 1 (VAT due on sales), Box 4 (VAT reclaimed on purchases), and Box 5 (net VAT to pay or reclaim).
5. Check for any adjustments. If you need to apply partial exemption, margin scheme calculations, or reverse charge adjustments, ensure these are correctly reflected before submitting.
6. Submit to HMRC. Click submit within your software. HMRC will return a confirmation receipt number. Save this as your proof of submission.
7. Pay any VAT owed. Payment must reach HMRC by the same deadline as the return. You can pay via bank transfer, Direct Debit, or the HMRC online portal.

VAT Return Deadlines

For most businesses on standard quarterly VAT periods, the return and payment are due one calendar month and seven days after the end of the VAT quarter. For example:

• Quarter ending 31 March → deadline 7 May
• Quarter ending 30 June → deadline 7 August
• Quarter ending 30 September → deadline 7 November
• Quarter ending 31 December → deadline 7 February

If you pay by Direct Debit, HMRC collects payment automatically three working days after the filing deadline, so you get a small grace period — but the return itself must still be submitted on time.

Common Mistakes to Avoid

• Missing the digital link requirement. Typing figures manually between spreadsheets breaks the digital link and makes you non-compliant, even if your software submits correctly.
• Forgetting postponed import VAT accounting (PIVA). If your business imports goods, you may need to account for postponed VAT on your return (Box 1 and Box 4). This is easy to miss if you are not tracking import entries separately.
• Incorrect VAT rate on mixed-rate supplies. If you supply goods or services at different VAT rates (standard, reduced, zero), ensure each transaction is coded correctly in your software.
• Late payment penalties. From January 2023, HMRC introduced a points-based penalty system for late submissions and a separate percentage-based penalty for late payment. One late return earns one penalty point; four points in a year triggers a £200 penalty.
• Not reconciling your VAT account. Before submitting, compare Box 5 to your VAT control account in your bookkeeping records. If they do not match, investigate before filing.

What If You Make an Error on a Submitted Return?

If you discover an error after submitting, you can correct it on your next return provided the net value of the error is below £10,000 (or 1% of your net turnover, up to a maximum of £50,000). Errors above these thresholds must be reported to HMRC separately using form VAT652.