Making Tax Digital for VAT: A Complete Guide to MTD VAT Compliance in 2026
What Is Making Tax Digital for VAT?
Making Tax Digital (MTD) is HMRC's flagship programme to modernise the UK tax system. At its core, MTD requires businesses to keep digital records and submit tax returns using compatible software — rather than manually logging into the HMRC website.
MTD for VAT was the first phase of this rollout. Since April 2022, all VAT-registered businesses — regardless of turnover — must file their VAT returns digitally through MTD-compatible software. The old HMRC VAT portal is no longer available for submissions.
This means that if your business is registered for VAT, you cannot file a VAT return by logging into your HMRC Government Gateway account and typing in the nine box figures. You must use software that connects to HMRC's APIs and transmits the data electronically.
Key point: MTD for VAT is not optional. If you are VAT-registered, you must comply — even if your taxable turnover is below the £90,000 VAT registration threshold.
Who Must Comply with MTD for VAT?
The compliance requirements have expanded over time. Here is the current position as of 2026:
- All VAT-registered businesses must use MTD-compatible software to keep digital records and file VAT returns — this includes sole traders, partnerships, limited companies, LLPs, and charities.
- Voluntary VAT registrations are included. Even if your turnover is well below the threshold, once you are VAT-registered, MTD applies.
- Flat Rate Scheme users must also comply with MTD, though their record-keeping requirements are slightly simplified.
- Exemptions are very limited. HMRC may grant an exemption if it is not reasonably practicable for you to use digital tools due to age, disability, remoteness of location, or religious beliefs. You must apply for this exemption directly with HMRC.
In practice, if you have a VAT registration number (VRN), you need MTD-compatible software. There are no turnover-based exemptions.
What About Dormant Companies?
If your company is dormant and not VAT-registered, MTD for VAT does not apply to you. However, if a dormant company retains its VAT registration (which some do for practical reasons), it must still file nil VAT returns through MTD-compatible software.
The VAT Return: Understanding the Nine Boxes
Every VAT return submitted to HMRC consists of nine boxes. Understanding what each one means is essential for accurate filing:
| Box | Description | What It Captures |
|---|---|---|
| Box 1 | VAT due on sales | Output VAT charged on your sales and other supplies |
| Box 2 | VAT due on acquisitions | VAT due on goods purchased from EU member states (acquisition tax) |
| Box 3 | Total VAT due | The sum of Box 1 and Box 2 |
| Box 4 | VAT reclaimed | Input VAT reclaimed on purchases and expenses |
| Box 5 | Net VAT | The difference between Box 3 and Box 4 — this is what you owe HMRC (or what HMRC owes you) |
| Box 6 | Total sales (ex VAT) | Total value of sales and outputs, excluding VAT |
| Box 7 | Total purchases (ex VAT) | Total value of purchases and inputs, excluding VAT |
| Box 8 | Total goods supplied to EU | Value of goods (not services) supplied to EU member states |
| Box 9 | Total goods acquired from EU | Value of goods (not services) acquired from EU member states |
Boxes 1–5 deal with the actual VAT amounts, while Boxes 6–9 capture the net values of transactions. Box 5 is the critical figure — a positive number means you owe HMRC, while a negative number means you are due a refund.
Tip: When WeFile's VAT filing launches, it will automatically calculate Box 3 (total VAT due) and Box 5 (net VAT) from your inputs — reducing the risk of arithmetic errors that could trigger an HMRC enquiry.
How MTD VAT Filing Works: The Technical Process
Behind the scenes, MTD VAT filing involves a secure API connection between your software and HMRC. Here's how the process works:
1. OAuth 2.0 Authentication
Before any data can be exchanged, your software must establish a secure connection with HMRC using the OAuth 2.0 protocol. This is the same industry-standard authentication used by banks and major tech companies. You will be redirected to HMRC's own login page, where you enter your Government Gateway credentials. HMRC then grants your software a time-limited access token.
This means your HMRC login details are never shared with or stored by the software provider. Your Government Gateway password is never seen by any third-party tool.
2. Retrieving Obligations
Once connected, the software queries HMRC to retrieve your VAT obligations — the list of return periods you need to file for. HMRC responds with the period dates, due dates, and whether each period is open or already fulfilled.
3. Submitting the Return
When you are satisfied with your nine-box figures, the software transmits the data to HMRC via their VAT Returns API. HMRC validates the data and, if accepted, returns a receipt containing a unique form bundle number — this is your official proof of submission.
4. Fraud Prevention Headers
HMRC requires all MTD software to send fraud prevention headers with every API call. These headers contain technical metadata about the device and connection being used (such as your IP address, device ID, browser details, and timezone). This is an anti-fraud measure and is mandatory — software that does not send compliant headers may have its access revoked.
WeFile will handle all of this automatically. When VAT filing launches on WeFile, the OAuth connection, obligation retrieval, return submission, and fraud prevention headers will all be managed seamlessly. You'll simply review your figures and click submit.
Coming Soon: VAT Filing on WeFile — Free of Charge
We're excited to announce that WeFile will soon offer MTD VAT return filing as part of our platform — and it will be completely free of charge for all users.
Here's what you can expect when it launches:
- One-click HMRC connection — Connect your HMRC account securely via OAuth 2.0 directly from your company's VAT page. Your Government Gateway credentials are entered on HMRC's own website and are never seen or stored by WeFile.
- Automatic obligation retrieval — Once connected, WeFile will pull your open and fulfilled VAT periods straight from HMRC, so you always know exactly which returns are due and when.
- Guided nine-box form — A clear, step-by-step form to enter your VAT figures. If you use Xero, QuickBooks, or FreeAgent, you'll be able to import your trial balance data directly.
- Review and submit — See a complete summary before filing, with automatic calculations for Box 3 and Box 5. Tick the legal declaration and submit — WeFile handles the rest.
- Instant confirmation — Receive your HMRC receipt ID and submission timestamp immediately, with options to verify directly with HMRC and export your return for your records.
- Liabilities and payments visibility — View what you owe HMRC and what payments have been received, all from within WeFile.
No per-return charge. No filing limits. No hidden fees. VAT return filing will be included free for every WeFile user — whether you're filing for one company or a hundred.
We believe that every UK business should have access to affordable, compliant MTD software. By offering VAT filing at no cost, we're removing one more barrier between you and hassle-free tax compliance.
Common MTD VAT Mistakes and How to Avoid Them
Whether you're preparing for WeFile's VAT launch or already filing with another tool, these are the most common errors businesses make with MTD VAT — and how to avoid them:
1. Filing for the Wrong Period
Some businesses accidentally file figures for the wrong quarter. Always check that the period dates shown on the submission screen match the period you intend to file for. HMRC-connected software like WeFile will pull these dates directly from HMRC, so they are always accurate.
2. Mixing Up Input and Output VAT
Box 1 is the VAT you charge your customers (output VAT), while Box 4 is the VAT you pay on your purchases (input VAT). Swapping these will result in an incorrect return. If your Box 5 figure looks unexpectedly large or small, double-check that Boxes 1 and 4 are the right way around.
3. Forgetting EU Acquisitions
If you purchase goods from EU member states, you must account for acquisition VAT in Box 2 (and reclaim it in Box 4, if applicable). Many businesses leave Box 2 as zero when it shouldn't be.
4. Not Reconciling Before Submission
Always reconcile your VAT figures against your accounting records before filing. The figures in your VAT return should tie back to your bookkeeping. If they don't, investigate the discrepancy before submitting.
5. Missing the Deadline
VAT returns are typically due one calendar month and seven days after the end of the VAT period. For example, a return for the quarter ending 30 June would be due by 7 August. Late submissions attract a points-based penalty under HMRC's new system.
6. Not Keeping Digital Records
MTD requires you to maintain digital records of your VAT transactions — not just file digitally. This means your sales invoices, purchase invoices, and VAT calculations must be stored in digital form. Keeping paper records and only typing the totals into software at filing time does not satisfy the MTD requirements.
HMRC's New Penalty Regime for Late VAT Returns
From January 2023, HMRC introduced a new points-based penalty system for late VAT returns, replacing the old default surcharge. Here's how it works:
Late Submission Penalties
Each time you submit a VAT return late, you receive one penalty point. Once you reach the penalty point threshold for your filing frequency, you receive a £200 penalty for that return and every subsequent late return.
| Filing Frequency | Penalty Point Threshold |
|---|---|
| Annual | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
You can reset your points to zero by submitting all returns on time for a sustained period (known as the "period of compliance").
Late Payment Penalties
Separate from submission penalties, HMRC also charges penalties for late payment of VAT:
- Up to 15 days late — No penalty (but interest accrues from day 1)
- 16–30 days late — 2% penalty on the VAT owed at day 15
- 31+ days late — An additional 2% on the VAT owed at day 30, plus a daily penalty of 4% per annum on the outstanding amount
Interest on Late Payments
HMRC charges interest on any VAT paid late, calculated at the Bank of England base rate plus 2.5%. This applies from the day after the due date until the date of payment.
The best way to avoid penalties is simple: file on time and pay on time. When WeFile's VAT filing goes live, it will show your obligation due dates clearly and send email confirmations when returns are accepted, so you always know where you stand.
VAT Schemes: Flat Rate, Cash Accounting, and Annual Accounting
HMRC offers several VAT schemes that affect how you calculate and report VAT. Here's a brief overview:
Flat Rate Scheme (FRS)
Instead of tracking VAT on every individual purchase, you pay a fixed percentage of your gross turnover to HMRC. The percentage varies by industry (e.g., 14.5% for computer consultancy, 12% for general engineering). The scheme simplifies record-keeping but may not be beneficial if you have significant input VAT to reclaim.
Cash Accounting Scheme
Under normal VAT accounting, you account for VAT when you issue an invoice — regardless of whether you've been paid. Under cash accounting, you only account for VAT when payment is actually received (or made). This helps with cash flow, particularly if your customers are slow to pay.
Annual Accounting Scheme
Instead of filing four quarterly returns, you file one annual return and make advance payments throughout the year based on an estimate. This reduces the number of returns you file but requires careful cash management.
All of these schemes are compatible with MTD. You must still use MTD-compatible software and keep digital records regardless of which scheme you use. WeFile's upcoming VAT filing feature will support all VAT schemes — you'll simply enter your nine-box figures and submit.
Frequently Asked Questions
Can I still file VAT returns on the HMRC website?
No. Since April 2022, the HMRC VAT portal no longer accepts returns for MTD-mandated businesses. You must use MTD-compatible software.
When will WeFile launch VAT return filing?
VAT filing on WeFile is coming very soon. We're putting the finishing touches on the feature and will announce the launch date shortly. Sign up for a WeFile account to be the first to know.
Will VAT filing on WeFile really be free?
Yes. VAT return filing will be included at no extra cost for all WeFile users. There will be no per-return charge, no filing limit, and no hidden fees. We believe affordable MTD compliance should be accessible to every UK business.
Do I need to be VAT-registered to use WeFile's VAT features?
Yes. WeFile's MTD VAT integration will require an active VAT registration. If you're not VAT-registered, you don't need to file VAT returns.
Is my data secure when connecting to HMRC?
Absolutely. WeFile uses OAuth 2.0, the same security standard used by banks. Your HMRC credentials are entered directly on HMRC's website — WeFile never sees or stores your Government Gateway password. All API communications are encrypted using TLS.
What happens if HMRC rejects my return?
If HMRC rejects a submission, WeFile will display the rejection reason and notify you by email. You'll be able to correct the figures and resubmit. Common rejection reasons include duplicate submissions or invalid period keys.
Can I amend a VAT return after submission?
HMRC does not allow amendments to submitted VAT returns through the API. If you need to correct an error, you must adjust the figures in your next VAT return (for errors up to £10,000 or 1% of turnover, whichever is greater) or notify HMRC directly for larger corrections using form VAT652.
Does WeFile support the VAT Flat Rate Scheme?
Yes. WeFile will allow you to enter your nine-box figures manually, so it will work with any VAT scheme. The MTD submission process is the same regardless of which scheme you use.
Making Tax Digital for VAT is here to stay, and compliance is non-negotiable for VAT-registered businesses. The good news is that with the right tools, filing is faster, more accurate, and less stressful than the old manual process.
WeFile is building a fully integrated HMRC connection that will handle the technical complexity — OAuth authentication, fraud prevention headers, obligation tracking, and secure submission — so you can focus on getting your figures right and filing on time. And best of all, it will be completely free.
Stay tuned for the launch announcement. In the meantime, if you haven't already, create your WeFile account so you're ready to go as soon as VAT filing goes live.