Making Tax Digital for VAT Guide
Complete guide to HMRC's MTD for VAT. Software requirements, digital record-keeping rules, digital links, penalties, and how Laabam.One ensures full MTD compliance.
MTD Timeline
MTD for VAT mandatory for businesses above £85,000 VAT threshold
MTD for VAT extended to ALL VAT-registered businesses (including voluntary)
MTD for Income Tax Self Assessment (ITSA) launches for self-employed & landlords earning > £50,000
MTD for ITSA extended to those earning > £30,000
MTD for VAT — Key Requirements
Use MTD-compatible software
You must use HMRC-recognised software to keep digital records and submit VAT returns. Spreadsheets alone are NOT acceptable — you need bridging software or a full accounting package.
Maintain digital records
All VAT records must be kept digitally: business name, VAT number, VAT scheme, supply details, rate applied, time of supply, value ex-VAT, and VAT charged. Paper records must be digitised.
Digital links between software
Data must flow digitally from your records to your VAT return — no manual re-keying. If you use multiple software tools, they must be digitally linked (API, CSV import, or automated transfer).
Submit via API
VAT returns must be submitted to HMRC via the MTD API — not the old HMRC online portal. Your MTD software handles this. You cannot file via Government Gateway for MTD-mandated periods.
UK VAT Rates
| Rate | Type | Applies To |
|---|---|---|
| 20% | Standard Rate | Most goods and services |
| 5% | Reduced Rate | Home energy, child car seats, sanitary products, mobility aids |
| 0% | Zero Rate | Food (most), children's clothing, books, newspapers, public transport |
| Exempt | Exempt | Insurance, finance, education, health, betting, postage stamps, land/property (some) |
| Outside scope | Outside Scope | Wages, dividends, donations, statutory fees, non-business income |
Digital Links — What's Compliant?
HMRC requires digital links between all software used in VAT record-keeping.
Penalties & Interest
Late submission
Points-based system: 1 point per late return. Threshold = 4 points (quarterly) → £200 fixed penalty. Points expire after 24 months of compliance.
Late payment (1–15 days)
No penalty if paid within 15 days. After 15 days: 2% of outstanding tax.
Late payment (16–30 days)
Additional 2% charged on balance outstanding at day 15.
Late payment (31+ days)
Further 4% per annum daily rate on balance from day 31.
Failure to keep digital records
Up to £400 penalty. HMRC can also block MTD submissions.