MTD VAT Filing: How to File Your VAT Return Online (Step-by-Step Guide for UK Businesses)

Filing VAT returns has changed permanently under Making Tax Digital (MTD). Every VAT-registered business in the UK is now required to keep digital records and submit VAT returns through MTD-compatible software. The shift is designed to reduce errors, improve accuracy, and modernise the way businesses interact with HMRC.

For many business owners, this raised common questions: What does MTD VAT filing mean in practice? What software do I need? Can I still use spreadsheets? What are the penalties if I make a mistake?

This article provides a clear, step-by-step overview of how to file your VAT return online under MTD. Whether you’re a sole trader, a small company, or a growing organisation, you’ll find practical guidance to stay compliant — and learn how Persona Finance can support you every step of the way.

Quick Answer: What is MTD VAT Filing?

Q: What is MTD VAT filing?
A: It means submitting VAT returns digitally through HMRC-recognised software instead of the old VAT portal. All VAT-registered businesses, regardless of turnover, must comply.

Q: Who must comply?
A: Every VAT-registered business in the UK, unless exempt for specific reasons (such as age, disability, or lack of internet access).

Q: Can I still use Excel?
A: Yes, but only with bridging software and strict use of digital links. Copy-pasting data into your VAT return is not allowed.

Q: What happens if I don’t comply?

A: HMRC applies a points-based system for late submissions and staged penalties for late payments. Points add up to fines, and interest is charged from day one of late payment.

What Is MTD VAT Filing?

Making Tax Digital is an HMRC initiative aimed at reducing filing errors, improving accuracy, and simplifying compliance. It requires VAT-registered businesses to:

• Maintain digital records of transactions
• Use digital links between record systems
• File VAT returns using MTD-compatible software

Originally, only businesses with turnover above the VAT threshold were included. Since April 2022, all VAT-registered businesses, regardless of size, must comply.

MTD Requirements: Records, Digital Links, and Software

1. Digital Record-Keeping

Businesses must store VAT-related information digitally, including:

• Time and value of supply
• VAT rate charged
• Adjustments (such as reverse charge, partial exemption, or bad debt relief)

2. Digital Links

A digital link is an electronic transfer of data between systems without manual re-entry.

• ✅ Allowed: APIs, linked spreadsheet cells, CSV/XML imports/exports, automated uploads
• ❌ Not allowed: Copy-paste, manual typing, screenshots

3. Software Options

• Full accounting software: Xero, QuickBooks, FreeAgent, Sage, etc.
• Bridging software: tools that connect spreadsheets to HMRC’s API.
• Useful short-term, but less reliable long-term.

👉 HMRC publishes an up-to-date list of MTD-compatible software.

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

1. Choose software (MTD-compatible accounting platform or bridging tool).
2. Authorise HMRC access within your software (authorisation lasts ~18 months).
3. Record all transactions digitally, ensuring VAT rates and dates are correct.
4. Reconcile and prepare your return (check VAT codes, review for errors).
5. Submit through the software via HMRC’s API.
6. Pay VAT on time (within 1 month + 7 days of the VAT period end).

💡 Tip: Persona Finance can manage this entire process for you, reducing admin time and ensuring full compliance.

Deadlines, Late Submission, and Late Payment Penalties

Late Submission (Points System)

• Penalty points are issued for each missed return.
• Thresholds:
• Monthly: 5 points
• Quarterly: 4 points
• Annual: 2 points
• £200 fine once the threshold is reached.
• Further late returns at the threshold = £200 each.

Late Payment (Staged Penalties + Interest)

• Days 1–15: No penalty (interest charged from day 1).
• Days 16–30: 3% penalty on outstanding VAT.
• Day 31+: Additional 3% penalty, plus daily penalty equivalent to 10% per year until payment is made.

📌 Example: A £5,000 VAT liability left unpaid for 40 days could lead to penalties exceeding £400, plus daily interest.

Special Cases to Consider

• Flat Rate Scheme, Partial Exemption, VAT Groups: MTD still applies — ensure your software supports these.
• Charities and non-profits: Same rules apply if VAT-registered.
• Exemptions: Must be applied for with HMRC.

MTD VAT Setup Checklist

•  Verify VAT registration number
•  Select MTD-compatible software
•  Authorise HMRC connection (renew every 18 months)
•  Set up VAT codes and rates in software
•  Ensure digital links (data flow mapped)
•  Perform a test submission
•  Retain digital records for at least 6 years

How Persona Finance Helps with MTD VAT Filing

• Full compliance management – from setup to filing
• Software migration – from Excel/spreadsheets to MTD-compliant tools
• VAT advisory – handling complex schemes and adjustments
• Dedicated support – HMRC-registered accountants with experience across industries

FAQs

1. How do I sign up for MTD VAT?
Most businesses are automatically enrolled; others must sign up via HMRC’s online service.
2. Can I still use the old VAT portal?
No — it’s closed for MTD businesses. You must use compatible software.
3. What records must I keep digitally?
Transaction-level data including time, value, and VAT rate.
4. How do digital links work?
They are automated transfers (e.g., APIs, linked cells). Copy-paste is not accepted.
5. What are the penalties for non-compliance?
Points-based system for late submissions; staged penalties and interest for late payments.
6. Can charities or small businesses be exempt?
Yes, but only in limited cases such as digital exclusion. You must apply to HMRC.

Conclusion

MTD VAT filing is now a legal requirement for all VAT-registered businesses in the UK. While the rules may seem complex at first, the right approach and the right software make compliance straightforward.
Rather than relying on manual spreadsheets or risking penalties, businesses can benefit from streamlined software and expert support.
At Persona Finance, we make MTD VAT filing simple, accurate, and stress-free. Whether you need help setting up software, migrating from Excel, or filing returns each quarter, we’re here to ensure you stay compliant and avoid costly mistakes.

👉 Contact Persona Finance today and let us handle your VAT filing with confidence.