Every VAT-registered business now files under Making Tax Digital. There is no manual entry route left — you cannot type nine figures into a GOV.UK web form and press send.
That changes three things: how you keep records, how data moves between your tools, and how the return reaches HMRC.
What MTD for VAT demands
All VAT-registered businesses should now be signed up, unless exempt or applying for exemption. HMRC signs you up automatically when you register — you no longer do it yourself.
Three obligations follow:
- Keep specified records digitally, in what the regulations call your electronic account.
- Move data between software using digital links — no retyping, no copy and paste.
- Submit through HMRC’s API, from functional compatible software.
Exemptions exist, and there are four grounds. You are automatically exempt if you are subject to an insolvency procedure, or if you are already exempt from filing VAT returns online. You can apply for an exemption if it is not reasonable or practical for you to use computers, software or the internet — because of age, disability or where you live — or if your business is run entirely by practising members of a religious society whose beliefs are incompatible with using electronic records.
The nine boxes
| Box | What goes in it |
|---|---|
| 1 | VAT due in the period on sales and other outputs — your output VAT |
| 2 | VAT due in the period on acquisitions of goods made in Northern Ireland from EU member states |
| 3 | Total VAT due — boxes 1 and 2 added together |
| 4 | VAT reclaimed in the period on purchases and other inputs — your input VAT |
| 5 | Net VAT to pay to HMRC or reclaim — box 3 minus 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 supplies of goods and related costs, excluding VAT, from Northern Ireland to EU member states |
| 9 | Total value of acquisitions of goods and related costs, excluding VAT, made in Northern Ireland from EU member states |
Box 1 catches more than invoiced sales — fuel scale charges, sales of stocks and assets, goods taken for private use, VAT due under reverse charge accounting, supplies to staff, and gifts of goods costing more than £50 excluding VAT.
Box 4 has exclusions worth memorising. Leave out VAT on goods bought wholly for personal use, on business entertainment, and on second-hand margin scheme goods. If you are partly exempt, recovery is restricted by the partial exemption rules.
Box 5 never carries a minus sign — enter the difference as a positive figure either way.
Boxes 6 and 7 are net values, not VAT. Box 6 includes zero-rated, reduced-rate and exempt supplies, fuel scale charges, exports and reverse charges. Box 7 includes imports and reverse charges but not wages, PAYE and National Insurance, or local authority rates.
Boxes 8 and 9 are Northern Ireland only — most businesses enter 0.00.
Records you must keep digitally
Your electronic account has to contain three groups of data.
Designatory data: business name, principal place of business, VAT registration number, and any VAT accounting schemes you use.
For each supply you make: the time of supply (the tax point), the value excluding VAT, and the rate charged. You must also record output value for the period, split between standard-rate, reduced-rate, zero-rate, exempt and outside the scope of UK VAT.
For each supply you receive: the time of supply, the value, and the input tax claimed.
Two relaxations help. Several supplies on one invoice in the same VAT period at the same rate can be a single entry. And where you apportion output tax on a mixed-rate supply with a single inclusive price — the meal deal problem — recording the total value and total output tax is enough. That has the force of law.
Not everything has to be digital. Invoices do not, though some documents must be kept in their original form regardless — a C79 import VAT certificate is the standard example.
Digital links: what counts and what does not
Once data has entered the software you use to keep your electronic account, any further transfer or modification must happen through a digital link — an electronic transfer between software programs needing no manual intervention.
HMRC accepts these as digital links:
- linked cells in spreadsheets — a formula in one sheet mirroring a value in another
- emailing a spreadsheet of digital records so it can be imported into another product
- putting digital records on a portable device and handing it to someone who imports them
- XML and CSV import and export, and file download and upload
- automated data transfer and API transfer
HMRC does not accept cut and paste, or copy and paste. That is the single rule most spreadsheet users break. Nor can you note invoice figures into a ledger by hand and then key that handwritten figure into another part of your system.
One sensible limit. If sales invoicing software or a general ledger is not used to maintain your electronic account, no digital link is needed when data moves from it into that account.
Choosing compatible software
Functional compatible software must record and preserve digital records, provide HMRC with returns from those records via the API, and receive information from HMRC via the API.
It does not have to be one product. A spreadsheet can form part of functional compatible software if it sits alongside something that handles the API side — that is what bridging software does. Full packages such as Xero, QuickBooks and FreeAgent do all of it in one place, which is why most businesses end up there rather than maintaining a spreadsheet-plus-bridge arrangement.
Submitting the return
- Close the period once all invoices are entered and the bank is reconciled.
- Run the VAT return and review each box against the underlying transaction list, not just the totals.
- Check the outliers — anything in box 6 or 7 that looks unlike a normal quarter usually is.
- Submit through the software to HMRC’s API, having authorised it once with your Government Gateway credentials.
- Keep the receipt and pay separately. Your software stores HMRC’s confirmation, and your VAT online account confirms it independently. Filing does not pay the bill — payment is due on the same date as the return.
Common errors and how to correct them
Errors under the threshold go on your next return. You can correct errors in returns for the preceding four years, as long as the net value is either £10,000 or less, or between £10,000 and £50,000 but less than 1% of your box 6 sales. Add the net value to box 1 for tax due to HMRC, or box 4 for tax due to you.
Errors above it must be reported separately — net errors over £50,000, net errors over £10,000 that exceed 1% of box 6, and any deliberate error, which cannot go into the net calculation at all.
Either way, record the date you found the error, how it happened and the VAT involved. HMRC can charge a penalty of up to 100% of any tax under-stated or over-claimed.
Frequently asked questions
Can I still submit my VAT return on the HMRC website?
No. All VAT-registered businesses file under Making Tax Digital unless they are exempt, and MTD returns must be submitted through the API from compatible software. The manual online entry route has gone.
Can I use a spreadsheet for MTD VAT?
Yes, provided it is digitally linked to bridging software or is itself API-enabled. A spreadsheet can form part of functional compatible software. What you cannot do is copy and paste figures between sheets or products — HMRC does not accept that as a digital link.
What is a digital link?
An electronic transfer of data between software programs that requires no manual intervention. Linked spreadsheet cells, emailed spreadsheets, XML and CSV import and export, automated transfers and API transfers all qualify. Cut and paste and copy and paste do not.
How do I correct a mistake on a VAT return I have already filed?
If the net value of the errors is £10,000 or less, or between £10,000 and £50,000 and less than 1% of your box 6 sales figure, adjust it on your next return by adding the net value to box 1 or box 4. Larger errors and any deliberate error must be reported to HMRC separately.
Do boxes 8 and 9 apply to my business?
Only if you are registered in Northern Ireland and move goods to or from EU member states. Every other UK business enters 0.00 in both.
Filing it without the guesswork
The mechanics are straightforward once the plumbing is right. The expensive part is the review — knowing that a reverse charge invoice belongs in box 1 and box 4, and that an unusual box 7 figure is worth investigating before you submit rather than after.
SmartFiling files MTD VAT returns on a fixed fee, working directly in Xero, QuickBooks or FreeAgent, with every return reviewed and signed off by an ICAEW Chartered Accountant before submission.
