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

All VAT-registered businesses must now comply with Making Tax Digital (MTD) for VAT. This requires businesses to keep VAT records digitally and submit VAT returns using MTD-compatible software.

The old HMRC VAT portal has been fully replaced, meaning manual entry of VAT figures is no longer permitted for most businesses.

What MTD for VAT Requires

Under Making Tax Digital, VAT-registered businesses must:

• Maintain digital VAT records
• Use MTD-compatible accounting software
• Submit VAT returns electronically through that software
• Maintain digital links between systems where data is transferred

These rules apply to all VAT-registered businesses, regardless of turnover.

Late Submission Penalties

HMRC now operates a points-based penalty system for late VAT return submissions.

Each time a VAT return is submitted late, the business receives one penalty point, regardless of whether:

• VAT is owed to HMRC, or
• The return results in a repayment.

Once a business reaches the penalty threshold, a £200 financial penalty is issued.

Typical thresholds include:

• Quarterly VAT returns: penalty issued after 4 points
• Monthly VAT returns: penalty issued after 5 points

Ongoing Penalties for Continued Late Filing

After reaching the penalty threshold, each additional late return will trigger another £200 penalty.

To reset the penalty points, businesses must submit returns on time for a set period:

• Four consecutive quarterly VAT returns, or
• Six consecutive monthly VAT returns

In addition, businesses must ensure all outstanding VAT returns have been filed before their points can be cleared.

Appealing VAT Penalties

Businesses have the right to appeal penalty points and financial penalties if they believe they have a reasonable excuse for late submission.

Examples may include:

• Serious illness
• Unexpected technical issues
• Events outside the business’s control

If an appeal is successful, HMRC may remove the penalty point or cancel the financial penalty.

Staying Compliant with MTD for VAT

To avoid penalties, businesses should ensure that they:

• Use MTD-compatible accounting software
• Keep accurate digital VAT records
• Submit VAT returns before the deadline
• Monitor their penalty points position

Regular bookkeeping and good record-keeping practices can help prevent compliance issues.

Action Point

If you have any concerns about Making Tax Digital requirements, VAT return deadlines, or penalty points, it is important to seek advice early.

At Merranti Accounting, we help businesses:

• Set up MTD-compliant accounting systems
• Manage VAT reporting efficiently
• Resolve VAT compliance issues
• Appeal HMRC penalties where appropriate

If you need help ensuring your business remains fully compliant with VAT regulations, please contact our team.