UK Making Tax Digital for VAT in 2026: What SMEs Need to Know

Making Tax Digital (MTD) for VAT is HMRC's flagship digital-tax programme. Since April 2022 it has applied to every VAT-registered business in the UK regardless of turnover. If you charge UK VAT, you file MTD-compliant returns full stop.

MTD is not just a different filing route. It mandates digital record-keeping with digital links between systems, and it requires HMRC-recognised software for the API submission. Spreadsheets are allowed only with bridging software that creates the digital link.

What "digital records" actually means

Under VAT Notice 700/22, you must keep the following digital records for every VAT-relevant transaction: the time of supply, the value (excluding VAT), and the VAT rate. For sales, also the VAT payable. For purchases on which VAT is reclaimed, the VAT input.

Crucially, the digital link rule means you cannot copy and paste from one system to another. The data must flow electronically end-to-end. If you use a spreadsheet for adjustments, the spreadsheet has to be linked digitally to your records and to the bridging software.

Quarterly returns via the API

VAT periods (typically quarterly) are submitted through the HMRC MTD API. The submission is summary data, not transaction-level — but the underlying digital records must support every figure on demand. HMRC can request the underlying records during compliance checks for up to 6 years (longer in fraud cases).

Penalties under the new points-based regime

Late submission triggers a penalty point. Accumulate four points (for quarterly filers) and a £200 fixed penalty applies, plus £200 for each subsequent late submission until you reset by filing on time for a clean run. Late payment carries separate interest and percentage penalties starting at day 16.

What this means for SMEs

• Use MTD-recognised software (Hisabi is on the roadmap for HMRC recognition; today most SMEs combine Hisabi for invoicing with a recognised submission tool).
• Validate UK VAT numbers (GB-prefix) at invoice issuance; an invalid number on a sale blocks reverse-charge claims.
• Keep your invoice store digitally end-to-end — Hisabi's structured-data architecture meets the digital-link requirement out of the box.
• File quarterly via the API and pay within the same window. The points-based penalty regime is unforgiving on repeat lateness.

How Hisabi helps

Hisabi stores every UK invoice as structured data with line-level VAT, the time of supply, and the GB VAT number. CSV export is MTD-friendly and can feed bridging software today. Direct MTD API submission is on the 2027 roadmap. Until then, your records are audit-ready and digital-link-clean.