If your VAT quarter ends in April, the return that follows will go through software. That has been the case for a while now, yet every spring brings the same scene: a business owner hunting for login details a week before the deadline, with a spreadsheet that has never been anywhere near HMRC.

Making Tax Digital for VAT is not a new tax. It is a change to how you keep records and how you send your return. Sorted out early, it is quietly efficient. Left to the last minute, it becomes a scramble.

What Making Tax Digital for VAT actually requires

Since April 2022, every VAT-registered business has had to follow the MTD rules. Two obligations sit at the centre of it:

• Keep your VAT records in digital form, as they are created or received
• Send your VAT return using compatible software that talks directly to HMRC

The second one catches people out. You cannot log in to your HMRC VAT account and type the figures in. Once you are signed up for MTD, that route closes, and it stays closed.

There is also the rule on digital links. Once information is digital, it has to move between systems digitally — no retyping, no copying a total from one spreadsheet into another. A single manual transfer breaks the chain, and the soft landing for this ended years ago, so it is worth checking that your process is genuinely clean rather than nearly clean.

Who has to comply

All VAT-registered businesses, whatever their size or structure: sole traders, partnerships, limited companies, charities and trusts. That includes businesses registered voluntarily below the current VAT registration threshold.

A small number can be exempt. HMRC can grant an exemption where digital record-keeping is genuinely not possible — for example where someone's religious beliefs forbid electronic communications, or where age, disability, location or another good reason makes it unreasonable to require. It is not automatic and not self-assessed: you apply and receive a written decision. If you think you have grounds, apply well before your return is due rather than waiting to see what happens.

Exemptions and VAT rules turn on individual circumstances, so take professional advice where it matters.

What counts as a digital record

HMRC wants more than a scanned invoice. These details must be held digitally:

• Your business name, address and VAT registration number
• Your VAT account, showing output tax and input tax totals for the period, with any adjustments
• For each sale: the time of supply, the value, and the rate of VAT charged
• For each purchase: the time of supply, the value, and the VAT you are entitled to reclaim

You can still keep paper originals and PDFs of invoices, and you can hold information in more than one system. What you cannot do is treat a shoebox and a calculator as your records. If you use cash accounting, the flat rate scheme, margin schemes or partial exemption, your software needs to handle those calculations properly — a basic VAT code setup often will not.

Choosing software that fits your bookkeeping

Compatible software generally falls into three groups.

Full cloud accounting packages

Records, bank feeds, VAT calculations and filing in one place. The natural choice if you are starting fresh or happy to move everything across.

Desktop software with an MTD module

Useful if you have years of history in a desktop package and would rather not migrate. Check that the version you own supports digital submission and that updates are still being supplied.

Spreadsheets plus bridging software

A popular option for businesses with a spreadsheet workflow they trust. The bridging tool takes the figures and sends them to HMRC. It works, but the discipline sits with you: the spreadsheet must pull data digitally, not by retyping.

HMRC publishes a list of compatible software, which is the sensible place to start. Before you commit, ask whether the product submits VAT returns directly, whether it supports your VAT scheme and sector, and how easily you could export your data if you wanted to move on. A cheap tool that cannot handle your scheme usually costs more in the end.

The steps to take before your April deadline

1. Confirm your next return period. Work out which return will be your first under MTD if you have not already signed up.
2. Check for exemption grounds and apply early if you believe you qualify.
3. Choose software and set it up properly — VAT codes, schemes, categories — rather than importing everything and hoping.
4. Sign up for MTD through your software or GOV.UK. Allow at least a week; you cannot file until the sign-up has been processed.
5. Authorise the software to connect to HMRC, which means having your Government Gateway credentials to hand.
6. Bring your opening balances across and agree a cut-off date. Running the old method alongside the new one for one period is a reasonable safety net.
7. Reconcile before you file. Compare digital figures with bank and supplier statements, and chase anything that does not match.

Mistakes that cost time and money

• Copying and pasting totals between spreadsheets, which breaks the digital link
• Signing up days before a deadline and finding the first return covers a longer period than expected
• Assuming the old VAT portal still works once you are on MTD
• Recording purchase totals without separating the VAT you can reclaim
• Overlooking adjustments such as fuel scale charges, bad debt relief or partial exemption
• Filing for the wrong period after a change of stagger group or accounting period

Late submission and payment penalties for VAT are points-based, so a habit of small delays can build into a financial penalty even when the tax itself is paid on time.

Your practical next steps

Start with the software decision, because everything else follows from it. Check the current HMRC list, shortlist two products, and ask your bookkeeper or accountant which one suits your VAT scheme before you buy. Then put the sign-up date in your diary — at least a week before your first MTD return is due, and ideally a month.

If you are already signed up, use the run-up to April to test your digital links and tidy your records. Ten minutes of checking now is cheaper than an afternoon of fixing in the week the return is due. And if your circumstances are unusual — partial exemption, mixed supplies, a group registration — take advice before you file rather than after.

Photo: Firmbee / Pixabay