VAT Software and Making Tax Digital Explained

Reviewed: 17 June 2026

VAT software helps VAT-registered businesses keep digital records, calculate return figures and submit VAT returns through Making Tax Digital-compatible processes. It supports compliance, but the business remains responsible for correct VAT treatment, complete records and accurate returns.

Making Tax Digital for VAT

VAT-registered businesses are generally required to follow Making Tax Digital for VAT unless HM Revenue & Customs (HMRC) has granted an exemption. The main requirements are to keep specified VAT records digitally and use compatible software to submit returns.

Where VAT information moves between software products, required digital links should be maintained. Manually copying or retyping totals between systems can break the digital record chain.

Read HMRC’s Making Tax Digital for VAT guidance.

What VAT software should support

Digital sales and purchase records.
VAT rates, tax points and VAT codes.
Output VAT, input VAT and adjustments.
A VAT account or equivalent audit trail.
Compatible submission to HMRC.
Evidence and reports supporting the return.
Corrections without losing the history of the original entry.

Spreadsheets and bridging software

A spreadsheet can form part of an MTD-compliant process, but it usually needs compatible bridging software to submit the return. Data transferred into or out of the spreadsheet must follow the applicable digital-link requirements. A spreadsheet alone is not automatically compliant simply because it is electronic.

MTD for VAT is not MTD for Income Tax

Making Tax Digital for VAT and Making Tax Digital for Income Tax are separate regimes. VAT MTD applies to VAT records and returns. MTD for Income Tax began its first mandatory phase on 6 April 2026 for self-employed people and landlords who meet the qualifying-income rules.

A business may need software that supports one regime, both regimes or integrations between them. Check MTD Income Tax eligibility separately.

Controls around VAT software

Restrict changes to VAT rates, codes and return periods.
Reconcile sales, purchases and bank activity before preparing the return.
Review unusual and high-value transactions.
Document manual journals, corrections and partial-exemption adjustments.
Require approval before submission.
Save the final return, supporting reports and HMRC confirmation.

Questions to ask before choosing software

Is the software compatible with the HMRC service the business needs?
Can it maintain the required digital records and links?
How does it handle VAT schemes, reverse charge and adjustments?
Can users trace each return figure back to the underlying transactions?
Does it provide approval controls and an audit trail?
Can records and reports be exported if the business changes systems?
How are updates, outages and failed submissions handled?

Related guidance

For registration rules, read VAT Registration in the UK. For the filing and review workflow, see VAT Compliance in the UK.

Official sources

This page provides general educational information and does not endorse a particular software product.

Using software for Making Tax Digital for VAT

All VAT-registered businesses should now be using compatible software to keep VAT records and submit VAT Returns. The software can be a record-keeping package or bridging software that connects existing digital records to HMRC.

What compatible software must support

Required digital VAT records
Calculation of the VAT Return from those records
Submission of the return through HMRC’s API
Receipt of information from HMRC where the feature is supported
Corrections and retention of an audit trail

Record-keeping software and bridging software

A full package stores the transactions and submits the return. Bridging software connects records held elsewhere, such as spreadsheets, to HMRC. Bridging can be appropriate, but the full process still needs controlled digital links, version control and reconciliation.

Digital records

Configure business name, VAT registration number, scheme, accounting periods, sales, purchases, VAT rates and adjustments. Retain source invoices and supporting evidence. Software classification is not evidence that the VAT treatment is correct.

Digital links

Where information moves between software products, it should move digitally rather than through manual re-keying where the MTD rules require digital links. Map exports, imports, formulas, APIs and bridging steps. Protect spreadsheets and retain the version used for the return.

VAT codes

Use controlled codes for standard, reduced, zero-rated, exempt, outside-scope and reverse-charge transactions. Limit who can create or change codes. Review new products, suppliers and international transactions rather than relying on defaults.

VAT account and reconciliation

Reconcile sales and purchase ledgers to the general ledger.
Review tax-code exception reports.
Reconcile output and input VAT to the VAT account.
Check scheme-specific adjustments.
Compare the return with prior periods and business activity.
Approve the final figures before submission.
Retain the return, receipt and reconciliation.

Schemes and special transactions

Confirm support for cash accounting, annual accounting, flat rate, retail or margin schemes where used. Review imports, exports, reverse charge, bad-debt relief, fuel scale charges and partial exemption where relevant. A product may be compatible with MTD while lacking the workflow needed for a complex scheme.

Corrections

Define how errors are corrected in the records and, where necessary, disclosed to HMRC. Preserve the original transaction, explanation and approval. Do not overwrite a filed period without understanding the software and tax consequences.

Authorising software

Compatible software asks for authority to access HMRC data. GOV.UK states that the authority lasts for 18 months and can be checked or withdrawn. Maintain a calendar for reauthorisation and remove access for products or users no longer required.

Software selection

VAT scheme and transaction complexity
Number of entities and registrations
Accounting, ecommerce and bank integrations
Bridging and spreadsheet controls
User permissions and approval
Correction and audit-trail capability
Exports, retention and migration
Support for agents and multiple users

HMRC lists compatible products but does not recommend a provider.

Migration between VAT systems

Choose a cut-off after a filed return where possible. Reconcile open periods, VAT account, invoices, credit notes and adjustments. Retain the prior system’s reports and digital-link evidence. Test the first return before submission.

Making Tax Digital for Income Tax interaction

From 6 April 2026, some sole traders and landlords must use compatible software for Income Tax. GOV.UK advises VAT-registered users to check whether their VAT software also supports Income Tax or can work with a separate product. One product must be used for each separate submission, although different products can be used for different tasks or income sources if the overall system works together.

Operational controls

Assign an owner for software access, tax codes, returns and HMRC authorisation. Monitor failed imports, disconnected bank feeds, expired authority and changes to integrations. Maintain a documented fallback for an outage close to the filing deadline.

Related ASH guides

Official guidance

Spreadsheet and bridging controls

Where spreadsheets form part of the VAT process, control input cells, formulas, versions and access. Protect calculation areas, document data sources and retain the filed version. A bridging submission does not validate spreadsheet formulas or transaction classification.

Agent and multi-user access

Clarify whether the business, accountant or both will prepare and submit the return. Use named accounts and appropriate permissions. The business should retain access to records and submission receipts even when an agent operates the software. Remove former staff and advisers promptly.

Return-review evidence

Keep a compact return file containing the detailed report, VAT-account reconciliation, exception review, adjustment calculations, approval and HMRC receipt. The file should allow another competent person to understand how the submitted boxes were produced.

Common software failures

Bank or ecommerce feeds stop without being noticed.
New VAT codes are created inconsistently.
Imports are duplicated after an error.
A spreadsheet formula is overwritten.
The wrong period or registration is selected.
HMRC authority expires close to the deadline.
A submission succeeds but the accounting period is not locked.

Outage and deadline planning

Identify provider support contacts, service-status pages, backup exports and who can submit. Do not leave authorisation, reconciliation or software updates until the deadline. If a technical issue prevents filing, preserve evidence of the problem and follow current HMRC guidance.

Quarterly system review

Review user access, connected applications, failed imports, tax-code changes, manual adjustments, expired permissions and unresolved reconciliation items. Confirm that the business model, VAT scheme and transaction types still match the configuration.

Exit and data portability

Before changing software, export transactions, VAT reports, attachments, tax-code lists, adjustments, submissions and receipts. Confirm how long the old system remains accessible. Retain enough information to support earlier returns and future HMRC questions.

Document the first return after migration or major configuration change, compare it with the previous process and review unexpected movements. A clean first submission is not enough unless the digital records, links and reconciliations can also be demonstrated.

Submission confirmation and period lock

After filing, confirm that HMRC accepted the return, retain the receipt and match the submitted figures to the approved reconciliation. Lock or otherwise protect the filed period so later edits cannot silently change the records supporting the return. Where a later correction is needed, document the reason, approval and link to the original submission.