making tax digital for VAT Alcester

HMRC has issued guidance for VAT-registered businesses and their employees on how to avoid penalties for non-compliance with the new Making Tax Digital (MTD) for VAT rules. The changes were due to come into effect in April 2022. However, they will now be introduced from January 1st, 2023.

Filing VAT Returns

There is a new £400 penalty if you file a return but do not use functional compatible software. Functional compatible software means a software program, or set of software programs, products or applications (apps) that can:

  • Record and store digital records
  • Provide HM Revenue and Customs (HMRC) with information and VAT returns from the data held in those digital records
  • Receive information from HMRC

If you file your returns, but do not use functional compatible software, HMRC may charge you a penalty of up to £400 for every return you file.

Keeping Records Digitally

There are also additional penalty charges if the business does not keep its records digitally. HMRC can charge businesses a penalty of up to £15 per day for every day the business does not meet that requirement.

Using Digital Links to Transfer or Exchange Data

You must ensure that any data that is transferred or exchanged between software programs, apps or products is done so using digital links. A digital link is where you transfer or exchange data electronically between software programs, apps or products. You must not transfer or exchange data manually.
Some examples of digital links are:

  • Linked cells in spreadsheets, including the use of ‘cell number/return’ functions
  • Emailing a spreadsheet containing digital records so the information can be imported into another software product
  • Transferring a set of digital records onto a portable device, such as a pen drive or memory stick, and physically giving this to someone else to import that data into their software
  • XML, CSV import and export, and download and upload of files
  • Application Programming Interface (API) transfer
  • Use of ‘cut and paste’ or ‘copy and paste’ to select and move information is not a digital link.


If you do not use digital links to transfer data between pieces of software, HMRC may charge you a penalty of between £5 to £15 for every day on which you do not meet this requirement.

Please contact Zoo Accounting in Alcester, if you need assistance to comply with the new Making Tax Digital changes.

making tax digital for VAT Alcester