Reporting and paying VAT

Overview

Making Tax Digital for VAT applies to all businesses that are VAT registered unless HMRC have agreed they are exempt (see the section Applying for exemption below). 

The main elements to the Making Tax Digital for VAT rules are:

• a requirement to keep business records in a digital format, incorporating digital links where necessary. We explain this in more detail under the heading Digital records below.
• a requirement to file the VAT return using API (application programming interface) enabled software. We explain more about this under the heading Filing a VAT return below.

Anyone registering for VAT for the first time will be automatically registered for Making Tax Digital for VAT at the same time. 

Once you have your VAT registration number you can then apply for exemption from Making Tax Digital for VAT if you are eligible. See our section Applying for exemption below. 

Applying for exemption 

Exemption from the Making Tax Digital for VAT rules is available if you meet one of three criteria:

• It is not ‘reasonably practicable’ for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason;
• you or your business are subject to an insolvency procedure; or
• your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

There is guidance on how to claim exemption from Making Tax Digital for VAT on GOV.UK, and HMRC have also produced more detailed information on exemption in VAT Notice 700/22.

You should fully explain the reasons why you believe you meet one of the exemption criteria and then HMRC will write to you to advise whether your claim has been successful. If it is not successful, you may be able to appeal against the decision and the way to do this will be set out in HMRC’s response to you. You do not have to comply with the Making Tax Digital for VAT rules while your claim is being considered or while an appeal is being made. If you need to file a VAT return and you have not yet had a final decision regarding your application for exemption, you will need to contact HMRC to discuss how they wish you to file returns while you await the outcome of your application or appeal.

If your claim for exemption is granted, HMRC will advise you how to file your VAT returns going forward. 

If a claim for exemption is ultimately unsuccessful, you will have to meet the Making Tax Digital for VAT requirements (as set out in the section Overview above) as soon as possible going forward.

HMRC can offer specialist support with VAT to vulnerable taxpayers though their Extra Support Service.

If you think you could be exempt but are happy to follow the new Making Tax Digital for VAT process, you can choose to do so if you wish. 

The government is helping small businesses located in rural areas with improving their internet connection through gigabit vouchers where businesses can claim up to £4,500 if certain conditions are met. There are more details, including the qualifying terms and conditions, on GOV.UK.

Digital records 

Making Tax Digital for VAT requires you to maintain business records digitally for VAT purposes in what is known as ‘functional compatible software’ and also to file your VAT returns using digital methods. This means that a digital record keeping system must be used. This could be an accounting software package, a spreadsheet-based system or maybe via an App on a smartphone.

Your digital record keeping system must also enable you to file the VAT return digitally with HMRC, either directly from within the software or by using bridging software.

See our information on digital record keeping on the page Record keeping and quarterly updates for Making Tax Digital in our Making Tax Digital information hub to read about things we suggest you need to think about when choosing software.

HMRC have published guidance to help with finding relevant software. This includes a tool which may help you to select a product which is most suitable for your business. This page is updated periodically by HMRC.

Data from business invoices and receipts must be recorded digitally but the invoices and receipts themselves do not need to be scanned and saved digitally, although they can be retained in this way.

If you are also in scope of Making Tax Digital for income tax from April 2026 (or will eventually be in scope within the next couple of years) you should think about choosing software that will enable you to comply with both the Making Tax Digital for VAT and Making Tax Digital for income tax rules.

If you are exempt from complying with Making Tax Digital for VAT, see our record-keeping section on our page VAT when running a business for more information.

Digital links

If you use more than one software package to keep records and submit returns, you need to link them digitally. There are examples of software digital links and more information on the data that must be retained digitally in functional compatible software on GOV.UK.

Filing a VAT return

As part of Making Tax Digital for VAT, you must file your VAT return using your software unless HMRC have agreed you are exempt. If you are exempt we cover filing your VAT return in our section Applying for exemption above.

Most accounting packages will have this functionality built in. However, if you use spreadsheets this will not be the case, and therefore you will need to purchase bridging software which will link your spreadsheet to HMRC’s systems and enable the VAT return to be filed. In these circumstances, the combination of the spreadsheet and the bridging software will constitute the ‘functional compatible software’. (Also see our Digital links guidance above.)

Remember that the Making Tax Digital regime is an administrative system and so the figures required for the VAT return itself remain the same and so your VAT payments/refunds will continue to be worked out in the same way as under the previous filing system.

The due dates for submission of the VAT return and payment of the VAT all remain the same too, (see the section VAT returns and payment of VATon our VAT when running a business page).

If you will not be able to pay your VAT on time you may be able to set up a payment plan to pay in instalments. If you are struggling to file the VAT return itself then you will probably need to seek help from the software provider in the first instance, as the problem is most likely to be to do with using the software itself rather than an issue which HMRC can help you with.

For information on the possible penalties that could arise from late payment of VAT or late submission of a VAT return see our VAT when running a business page.

More information

GOV.UK has information on VAT generally including: deadlines for filing and payment, reclaiming VAT, VAT visits and inspections, and using VAT online services.

HMRC’s collection of guidance on Making Tax Digital for VAT is also available on GOV.UK.

VAT notice 700/22 has detailed information on the Making Tax Digital programme.