What are the new Making Tax Digital VAT requirements?

Team Nomi

Mar 23, 2026
6 minutes read

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If you’re a business owner or self-employed, you’ve probably heard about Making Tax Digital (MTD) for VAT. New rules will apply to even more businesses, including those earning between £85,000 and £90,000.

This means no more paper records, no more last-minute VAT calculations, and no more manual submissions. Instead, you must use digital software to track and submit your VAT returns. 

This change ensures that more businesses submit accurate VAT returns.

What is Making Tax Digital for VAT?

If you’re wondering what is making tax digital for VAT, it is a system where businesses must keep digital tax records and file VAT returns online using compatible software. 

Under MTD, businesses must:

• • Keep digital records of VAT
  • Use MTD-compatible software
  • Submit VAT returns directly to HMRC through software

These vat mtd requirements apply to all VAT-registered businesses, regardless of turnover.

Who needs to follow MTD for VAT in 2026?

All VAT-registered businesses must comply with the Making Tax Digital VAT requirements, even if:

• • Your turnover is between £85,000 and £90,000.
  • You voluntarily registered for VAT

There are very limited exemptions. These include:

• • Businesses that cannot use digital tools due to age, disability, or location
  • Religious beliefs preventing digital use

If you qualify, you must apply to HMRC for exemption.

What are the MTD VAT requirements?

The mtd VAT requirements remain mostly the same, but HMRC is now stricter on enforcement.

Here’s what you must do:

1. Keep digital records

You must maintain digital records of:

• • Business name and VAT number
  • VAT accounting schemes used
  • VAT on sales and purchases

Manual records alone are no longer accepted under making tax digital vat requirements.

2. Use compatible software

You must use MTD-compatible software to:

• • Record VAT transactions
  • Submit VAT returns

Bridging software is still allowed, but HMRC encourages full digital systems.

3. Submit VAT returns digitally

VAT returns must be submitted directly through MTD software.

You cannot:

• • Use HMRC’s old VAT portal
  • Manually enter figures online

This is one of the core vat mtd requirements.

4. Maintain digital links

All systems must be digitally connected.

For example:

• • Spreadsheets must link to submission software
  • No manual copying and pasting

This is a key compliance area under Making Tax Digital VAT requirements, and HMRC checks this more closely now.

Legislation and Timelines for MTD

• • April 2019: MTD for VAT became mandatory for businesses with a turnover between £85,000 and £90,000.
  • April 2022: MTD for VAT extended to all VAT-registered businesses.
  • April 2026: MTD for Income Tax Self Assessment (ITSA) starts for sole traders and landlords earning over £50,000.
  • April 2027: The MTD for ITSA threshold lowers to £30,000.

Staying updated on these changes ensures compliance and avoids penalties.

What has changed in 2026?

There are no major new rules introduced in 2026, but enforcement has increased.

Here are the updates:

Stricter compliance checks

HMRC is now:

• • Monitoring digital links more closely
  • Checking software usage
  • Reviewing record accuracy

Failure to follow making tax digital vat requirements can lead to penalties.

Penalty system in place

The points-based penalty system is now active.

You may face penalties if you:

• • Miss VAT return deadlines
  • Submit incorrect returns
  • Fail to follow digital rules

This applies to all businesses under mtd vat requirements.

Focus on digital record accuracy

HMRC is focusing more on:

• • Correct VAT calculations
  • Proper digital audit trails

Keeping accurate records is now more important than ever.

What software do you need for MTD?

To meet the Making Tax Digital VAT requirements, you need MTD-compatible software.

This software should:

• • Keep digital VAT records
  • Connect directly to HMRC
  • Submit VAT returns

Popular options include cloud accounting tools and bridging software.

If you are still using spreadsheets, ensure they are linked digitally to submission software.

Steps to Prepare for MTD for VAT in 2026

To prepare for MTD for VAT in 2026, check if your business must comply based on VAT registration and turnover. Choose MTD-compatible software, ensure all VAT records are stored digitally, and understand the new quarterly reporting requirements to avoid penalties.

1. Check If You Need to Comply

• • If your business is VAT-registered, you must follow MTD for VAT rules.
  • Check your turnover. If it is under £90,000, you must comply from April 2025.

 2. Choose MTD-Compatible Software

• • Use HMRC-recognised software such as:
    • Nomi
    • Xero
    • QuickBooks
    • Sage
    • FreeAgent
  • Ensure your software can store digital records and submit VAT returns.

3. Ensure Digital Record-Keeping

• • Scan paper receipts and invoices.
  • Store records electronically in a structured format.
  • Use cloud-based accounting tools for easy access.

4. Understand New Reporting Obligations

• • Submit VAT returns every three months.
  • Keep records for at least six years.
  • Ensure accuracy to avoid penalties.

Penalties for Non-Compliance with MTD for VAT

Failing to comply with MTD for VAT rules from April 2026 can result in penalties from HMRC. The government has introduced a new penalty points system to ensure businesses meet their digital VAT obligations.

1. Late VAT Return Submissions

Under the new system, businesses that fail to submit VAT returns on time will receive penalty points instead of an immediate fine.

2. Late VAT Payments

If businesses fail to pay VAT on time, they will face additional penalties based on how late the payment is:

• • Up to 15 days late – No penalty if the VAT is paid or a payment plan is arranged.
  • 16-30 days late – A 2% penalty of the VAT owed is charged.
  • 31+ days late – A 4% penalty of the outstanding amount applies.

Interest is also charged on overdue VAT payments at HMRC’s interest rate.

3. Failure to Use MTD-Compatible Software

Businesses that do not use HMRC-recognised MTD software for VAT returns may face compliance checks and potential fines.

Looking for MTD-ready software for VAT? Nomi is the perfect solution for smooth VAT compliance. As HMRC-recognised MTD software, Nomi helps businesses automate VAT calculations, submit returns digitally, and maintain accurate digital records, ensuring compliance with MTD for VAT 2025.

With Nomi, businesses can eliminate manual errors, file VAT returns directly to HMRC, and stay penalty-free by meeting all digital record-keeping requirements. 

Experience its advantages by signing up for a 30-day free trial, or you can book a free demo to see its features and functionalities in action. Whether you’re a sole trader, small business, or accountant, Nomi makes VAT reporting easy, efficient, and stress-free.

Note: Nomi does not offer accounting, tax, business, or legal advice. This blog is for general information only. For advice specific to your business, please consult a qualified accountant before acting on any of the information provided.

Frequently Asked Questions

1. Is Making Tax Digital for VAT compulsory?
   Ans. Yes, Making Tax Digital (MTD) for VAT is compulsory for VAT-registered businesses with a taxable turnover above £85,000.
2. How does MTD work with VAT?
   Ans. MTD for VAT requires businesses to keep digital records and submit VAT returns using compatible software directly to HMRC.