Making Tax Digital for VAT: What UK Accounting Firms Need to Do Now (June 2026)

MTD for VAT has been mandatory since April 2022, which means your firm has been submitting VAT returns through HMRC-compatible software for years. The compliance gap most firms still have isn't the submission itself, it's the layer underneath: how VAT data actually gets into that MTD-compatible software in the first place. If clients are emailing invoices as PDFs and someone on your team is typing the numbers in manually before the return gets filed, you've broken HMRC's digital links requirement, even if your submission software is approved. With MTD for Income Tax starting in April 2026 and enforcement tightening across the board, closing that gap is no longer optional.

TLDR:

• MTD for VAT requires a digital link from source records to HMRC submission with no manual re-keying at any point.
• Copy-pasting figures from a spreadsheet into your bridging software breaks compliance.
• MTD for Income Tax arrives April 2026 for sole traders and landlords earning over £50,000.
• HMRC's penalty regime uses a points-based system: £200 after hitting your filing threshold.
• Tofu extracts line-item data from invoices and bank statements, then publishes directly to your accounting software.

What MTD for VAT Actually Requires in 2026

UK VAT-registered businesses must now keep digital records and submit VAT returns using HMRC-compatible software. That requirement has been in force since April 2022 for all VAT-registered businesses, with no threshold exemption remaining.

In practice, MTD for VAT means three things:

• You must keep digital records of VAT transactions, not paper ledgers or manually-updated spreadsheets that aren't linked to your submission software.
• Every VAT return must be submitted through software with an Application Programming Interface (API) connection to HMRC, not through the old online VAT account portal.
• There must be a continuous digital link between your records and your submission, meaning no manual re-keying of figures at any point in the chain.

What counts as a compliant digital link

HMRC defines a digital link as any electronic transfer of data between software programs, products, or applications. Copying a figure from a spreadsheet and typing it into your bridging software does not qualify. Acceptable methods include automated data feeds, API connections, CSV imports triggered by the software itself, and direct integrations between accounting software and HMRC. VAT Notice 700/22 sets out the complete digital record keeping requirements.

The exemptions that still apply

A small number of businesses can apply for an MTD exemption if compliance is not reasonably practicable due to age, disability, or remote location. HMRC grants these case by case and they are genuinely rare. Insolvency cases and certain businesses run by practicing members of religious societies also have specific provisions. For the vast majority of VAT-registered clients your firm handles, full MTD compliance is mandatory.

The Digital Links Requirement Most Firms Still Get Wrong

HMRC's digital links requirement is where many firms quietly slip up, even after years of MTD compliance.

A digital link means data must flow electronically between software systems, with no manual re-keying at any point in the VAT return journey. Copy-pasting figures from a spreadsheet into your bridging software counts as a manual intervention and breaks the chain.

Here is what qualifies as a compliant digital link:

• API connections between your accounting software and MTD-compatible filing tools, where data transfers automatically without human input.
• Exported CSV or XML files that feed directly into bridging software, provided the file is imported programmatically instead of transcribed by hand.
• Linked cells within a spreadsheet that pull figures between tabs automatically, as long as no values are typed over.

What does not qualify:

• Typing totals from one system into another, even if both systems are MTD-recognised.
• Emailing a figure to a colleague who then enters it manually into the submission tool.
• Copying a number from a PDF report into your bridging software by hand.

HMRC has confirmed that spreadsheets remain acceptable for record-keeping under MTD for VAT, but only when digital links connect every transfer of data between that spreadsheet and the submission software. The spreadsheet itself is not the problem; the broken link between it and the next system is.

Firms running multi-entity clients or consolidated VAT groups face the highest exposure here, because data often passes through several systems before reaching the submission point. Each handoff needs a documented digital link, not a manual workaround.

Why 2026 Raises the Stakes: MTD for Income Tax Arrives

MTD for VAT was the first phase. MTD for Income Tax Self Assessment (ITSA) is next, and it changes the scope of who accounting firms need to serve digitally.

From April 2026, sole traders and landlords earning over £50,000 must comply. The threshold drops to £30,000 in April 2027, and further still to £20,000 in April 2028. ICAEW is encouraging early sign-up for affected taxpayers.

For accounting firms, that brings a new category of clients entering the MTD world who have never filed digitally before.

What this looks like in practice

Three groups will need hands-on support from their accountants:

• Landlords with rental income above the relevant threshold who have never kept digital records and may be unfamiliar with quarterly reporting requirements.
• Sole traders currently using spreadsheets or paper records who need to move to MTD-compatible software before their compliance deadline hits.
• Clients who are already VAT-registered under MTD but now face a second, parallel MTD obligation for income tax that operates under different rules and different submission cycles.

Firms that have already built MTD workflows for VAT are better positioned here, but the client volume involved in ITSA rollout is considerably larger. Getting ahead of client onboarding now, before the April 2026 deadline passes and the 2027 wave begins, is where firms avoid the seasonal scramble.

The Most Common Digital Links Gap UK Firms Have Right Now

Many UK accounting firms have MTD for VAT set up for their VAT-registered clients. What they're missing is the layer underneath: how that VAT data actually gets into their MTD-compatible software in the first place.

The gap shows up the same way across firms of every size:

• Clients are still emailing photos of receipts, forwarding supplier invoices as PDFs, and sending over scanned bank statements. Someone at the firm opens each one and types the numbers in manually before a VAT return ever gets submitted.
• The MTD submission itself is compliant. The 40 minutes of data entry that preceded it is not accounted for anywhere.
• As client volumes grow, that manual input bottleneck grows with them, and firms end up hiring to absorb it instead of fixing the process.

The digital link requirement under MTD for VAT means data must flow digitally from source to submission without manual re-keying at any point. A bridging spreadsheet patches the submission end. It does nothing about the document end.

That is where most firms are sitting right now: technically compliant on submission, manually exposed everywhere else.

How to Close the Digital Links Gap in Your Firm

Your firm's MTD compliance gap is rarely about intent. It's about the gap between what HMRC expects and what your current workflows actually produce.

Start by auditing where your VAT data originates. If any client is still emailing spreadsheets, using non-compatible software, or relying on manual journal entries to produce their VAT figures, that client is a compliance risk under MTD requirements.

There are three practical steps to close that gap:

• Review every VAT-registered client against the digital links requirement. Each figure that moves from source data to your VAT return submission must travel through an unbroken chain of digital connections, with no manual re-keying at any point.
• Identify which clients need software upgrades. Free bridging software can work as a short-term fix for clients using spreadsheets, but it introduces fragility. A proper MTD-compatible accounting package is the more reliable long-term answer.
• Confirm your submission route. Your firm needs HMRC-recognised VAT software to file on behalf of clients. Check that your current tools appear on HMRC's approved software list before the next filing cycle.

Getting this right before the June 2026 deadline matters. HMRC has been clear that digital links are not optional, and the penalty regime for MTD non-compliance applies per return.

MTD for VAT Penalties and Enforcement in 2026

HMRC's penalty regime for MTD VAT non-compliance has teeth, and the 2026 enforcement posture reflects that.

The agency moved away from fixed fines toward a points-based system for late submissions. Each missed VAT return earns a penalty point, and once you hit the threshold for your filing frequency, a £200 financial penalty applies. Points can accumulate quickly for quarterly filers who miss two returns back to back.

Late payment penalties follow a separate track:

• Missing the payment deadline by up to 15 days incurs no penalty, provided you contact HMRC or pay in full before day 16.
• From day 16 to day 30, a 2% penalty applies on the outstanding amount.
• From day 31 onward, the penalty doubles to 4%, calculated daily on what remains unpaid.

HMRC also charges interest on late payments at the Bank of England base rate plus 2.5%, which has made dragging out a VAT debt considerably more expensive than it was under the old flat-rate regime.

Keeping a clear record of submission confirmations, filing dates, and any HMRC correspondence is worth treating as standard practice instead of an afterthought.

Digital Links Compliance Checklist for UK Accounting Firms

Since the current section is empty, I'll write the Digital Links Compliance Checklist for UK Accounting Firms section from scratch, staying within the 111-word limit and aligned with the brief and brand voice.

Before checking your firm's compliance, it helps to know exactly what HMRC considers a "digital link." Any transfer or exchange of VAT accounting data between software programs must happen digitally, with no manual re-keying in between.

Here's what your firm needs in place:

• Every piece of VAT data must flow from source records through to your VAT return submission without a human copying figures by hand.
• Spreadsheets can still be used, but cells must be linked by formula or macro, not typed manually.
• Bridging software connecting a spreadsheet to an HMRC-recognised submission tool satisfies the requirement, provided no manual intervention occurs in the data chain.

Software Options for MTD for VAT Compliance

HMRC maintains a list of approved MTD for VAT software, and the options range from full accounting packages to lightweight bridging tools.

Full accounting software

For most firms, the simplest route is accounting software with MTD submission built in. QuickBooks, Xero, Sage, and FreeAgent all support direct VAT return submission to HMRC without any additional setup. If your clients are already on one of these, you may already have what you need.

Bridging software

Bridging software sits between a spreadsheet and HMRC's API, converting the data into a compliant submission. It's useful for clients who keep records in Excel and aren't ready to move to a full accounting package. Free bridging software options exist, though they tend to be bare-bones.

What to look for

When choosing any MTD VAT software, the practical questions are:

• Does it connect directly to HMRC's MTD API, or does it require manual export steps that create room for error?
• Can it handle multiple VAT schemes, including flat rate and cash accounting?
• Does it store submission records in a way your firm can audit later?
• Is it on HMRC's approved software list?

The right choice depends on how your clients keep their records, how many VAT-registered clients you manage, and whether you want submissions handled within a single accounting workflow or as a separate step.

How Tofu Closes the Digital Links Gap for UK Firms

UK accounting firms are already under pressure to meet MTD for VAT requirements, but compliance alone isn't the finish line. The real bottleneck is what happens before a VAT return gets submitted: pulling transaction data from client records, checking it against bank feeds, and keying figures into MTD-compatible software.

Tofu sits in that gap. It extracts line-item data from invoices, receipts, and bank statements in any format, then publishes directly to your accounting software, so the records feeding your MTD submissions are accurate before they reach HMRC.

• No re-keying client data from PDFs or scanned documents
• No manual reconciliation of invoices and statements
• No chasing clients for missing records at quarter end

For firms managing MTD submissions across dozens of clients, that's the difference between a process that scales and one that doesn't.

Final Thoughts on Digital Links and MTD Requirements

The digital links requirement is non-negotiable, and it covers the entire chain from source document to HMRC submission. If anyone at your firm is typing figures from a PDF into your accounting software, that's where compliance breaks. Getting it right before 2026 matters, because the penalty regime applies per return and HMRC has been clear about enforcement. See a compliant digital link in action in your own workflow.

FAQ

What is Making Tax Digital for VAT?

Making Tax Digital for VAT requires UK VAT-registered businesses to keep digital records and submit VAT returns through HMRC-compatible software with an API connection. Every VAT return must flow through software connected to HMRC's API, and there must be a continuous digital link between your records and your submission, with no manual re-keying of figures at any point in the chain.

Can I still use spreadsheets for VAT record-keeping under MTD?

Yes, spreadsheets remain acceptable for record-keeping under Making Tax Digital for VAT, but only when digital links connect every transfer of data between that spreadsheet and the submission software. The spreadsheet itself isn't the problem—the broken link between it and the next system is. Copying a figure from a spreadsheet and typing it into your bridging software does not qualify as a compliant digital link.

Making Tax Digital for VAT vs MTD for Income Tax: what's the difference?

MTD for VAT applies to VAT-registered businesses and requires digital VAT return submission through HMRC-compatible software. MTD for Income Tax Self Assessment (ITSA) starts April 2026 for sole traders and landlords earning over £50,000, requiring quarterly digital reporting of income and expenses—a separate obligation that operates under different rules and different submission cycles.

How do I close the digital links gap in my VAT workflow?

Review every VAT-registered client against the digital links requirement: each figure that moves from source data to your VAT return submission must travel through an unbroken chain of digital connections, with no manual re-keying at any point. Upload invoices to software like Tofu, which extracts line-item data and publishes directly to your accounting software, so the records feeding your MTD submissions are accurate before they reach HMRC.

What are the MTD for VAT penalties in 2026?

HMRC uses a points-based system for late submissions: each missed VAT return earns a penalty point, and once you hit the threshold for your filing frequency, a £200 financial penalty applies. Late payment penalties are 2% on the outstanding amount from day 16 to day 30, then 4% from day 31 onward, plus interest at the Bank of England base rate plus 2.5%.