Everyone registered is already in scope
All VAT registered businesses should now be signed up for Making Tax Digital for VAT, and HMRC's guidance says you no longer need to sign up yourself. New VAT registrations are brought in automatically unless they are exempt or have applied for an exemption.
That closes the size question. There is no longer a small-business exemption from MTD for VAT based on turnover.
What it requires in practice
There are five requirements, and the third and fourth are the ones people miss:
- Keep your records digitally in functional compatible software
- Prepare the VAT return from those digital records
- File through HMRC's API rather than entering figures on the website
- Use digital links between the software components that hold and move the figures
- Use the software's checking functions before you submit
Functional compatible software does not have to be a single product. HMRC accepts a set of products that work together, such as a spreadsheet with bridging software, provided the figures move across a digital link instead of being retyped.
What it costs if you fall short
The penalties are set out in HMRC's compliance guidance:
| Failure | Penalty |
|---|---|
| Filing a return without functional compatible software | Up to £400 per return |
| Not keeping records digitally | £5 to £15 per day |
| Not using digital links | £5 to £15 per day |
HMRC's wording is that it may charge these, so they are not automatic. They are not theoretical either, and the daily penalties are the ones to watch, because they run while the problem continues.
If digital tools genuinely are not practical
There is an exemption route, and it is narrower than people assume. It covers cases where using digital tools is not practical, for example on grounds of age, disability or location, or where the business is already exempt from filing VAT returns online. You apply to HMRC rather than deciding for yourself.
HMRC is explicit that being unfamiliar with software, or age on its own, is not sufficient.
How this sits with MTD for Income Tax
They are separate regimes with separate triggers. MTD for VAT is complete and follows VAT registration. MTD for Income Tax is about how self-employment and property income are reported, and it arrives in stages: over £50,000 of qualifying income from 6 April 2026, over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028.
Plenty of sole traders will be in both, which is why the two sets of deadlines are easier to live with on one calendar than in two heads.