VAT Registration vs Making Tax Digital for VAT

VAT registration and Making Tax Digital for VAT are separate obligations that arrive together. Registration is about whether you must charge VAT at all, driven by your turnover over a rolling twelve-month period or by a voluntary choice. Making Tax Digital is about how you then keep records and file — digitally, through compatible software, with no manual retyping into the HMRC portal. Registering triggers the second obligation automatically, including for voluntary registrations. This comparison sets out both so you can prepare for them at the same time.

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FeatureVAT RegistrationMaking Tax Digital for VAT
Threshold triggerMandatory registration when taxable turnover exceeds £90,000 in any rolling 12-month period (from April 2024); voluntary registration is permitted below this thresholdMandatory for all VAT-registered businesses from April 2022 (over threshold) and April 2022 for all registered businesses; no separate turnover threshold — registration triggers MTD
Scheme choiceStandard VAT, Flat Rate Scheme (FRS), Cash Accounting Scheme, Annual Accounting Scheme — choice affects how VAT is calculated and paidNo separate scheme choice for MTD — it is a record-keeping and filing method, not a VAT scheme; compatible with all VAT accounting schemes
Registration deadlineMust register within 30 days of end of the month in which you exceeded the threshold; late registration incurs a penalty based on VAT owedCompliance required from the first VAT period starting on or after the date you became obligated; no separate registration — follows VAT registration
Software requirementsNo software required for VAT registration itself — registration done via HMRC online services (VAT1 form)Mandatory use of HMRC-recognised MTD-compatible software (e.g. Xero, QuickBooks, Sage, FreeAgent) to keep digital VAT records and submit returns via the API
DeregistrationCan deregister voluntarily if taxable turnover falls below £88,000 or ceases; must deregister if business stops making taxable suppliesMTD obligations cease on deregistration from VAT; no separate MTD deregistration process
Penalty regimeLate registration penalty of 5%–15% of VAT owed since the date you should have registered (higher rates for longer delays)Points-based penalty system from January 2023: 2 points = first financial penalty; penalties escalate for repeat failures; separate regime from VAT penalty regime
Late-filing penalty pointsLate payment penalties apply to VAT owed: 2% after 15 days, 4% after 30 days, plus daily penalties thereafterMTD filing points accrue separately: 4 points for quarterly filers triggers £200 penalty; submit all returns and wait 24 months for points to expire
Digital link requirementNot applicable — VAT registration is a status, not a data-processing obligationDigital links must connect all parts of the VAT calculation chain — copy-and-paste between spreadsheets does not qualify; bridging software or integrated accounting software required
Sole trader vs limited company differencesBoth sole traders and limited companies register in the same way; sole traders use their NI number and UTR; limited companies use their company registration numberSame MTD rules apply to sole traders and limited companies registered for VAT; the business entity type does not change the MTD obligations
Recent changesRegistration threshold raised from £85,000 to £90,000 in April 2024; deregistration threshold raised to £88,000; no change to VAT rates for most businessesMTD for VAT extended to all VAT-registered businesses in April 2022; MTD for Income Tax Self Assessment (ITSA) deferred — sole traders and landlords above £50,000 from April 2026

MTD for VAT applies to all VAT-registered businesses, including those registered voluntarily below the £90,000 threshold. HMRC has published a list of approved MTD-compatible software on GOV.UK. Bridging software is an option for businesses that want to keep existing spreadsheets but must digitally submit.

Getting the timing and the software right

Watch the rolling twelve-month test rather than your financial year. The registration threshold is measured over any consecutive twelve months, not the year to your accounting date, which is why businesses growing steadily cross it without noticing. There is also a forward-looking test: if you expect to exceed the threshold in the next thirty days alone, you must register immediately. Late registration means paying VAT you never charged your customers, out of money you have already spent.

  • Approaching the threshold? Check your rolling twelve-month total monthly, and plan for pricing changes before you have to make them.
  • Below it but selling mainly to VAT-registered businesses? Voluntary registration lets you reclaim input VAT, and your customers can reclaim what you charge.
  • Selling mainly to consumers? Registering voluntarily makes you more expensive or squeezes your margin. Think carefully.

The mistake that costs most is treating digital record keeping as an afterthought. Making Tax Digital requires records kept digitally and returns filed through compatible software with digital links between the two, so copying figures from a spreadsheet into the HMRC website by hand is not compliant. Bridging software lets you keep spreadsheets if you prefer them, but the link must be digital.

Set money aside for each VAT bill as it accrues rather than at quarter end. VAT collected is never your money.

Frequently asked questions

What happens if I register late?
HMRC backdates your registration to the date you should have registered, and you owe VAT on sales made from that point even though you did not charge it — you must either absorb it from your margin or try to invoice customers retrospectively, which is often commercially impossible. A penalty may be added on top, based on how late you were and whether the failure was deliberate. Registering as soon as you spot the problem, and telling HMRC before they contact you, reduces the penalty considerably.
Can I deregister if my turnover falls?
Yes, once your taxable turnover drops below the deregistration threshold and you expect it to stay there. Deregistration is not automatic — you have to apply, and until you do the obligations continue. Bear in mind you may have to account for VAT on stock and assets you still hold on which you reclaimed input tax. If the drop is temporary, staying registered may be simpler than deregistering and re-registering a few months later.
Which VAT scheme should I choose?
It depends on your cash flow and your costs. The flat rate scheme simplifies calculations by applying a single percentage to turnover, but you generally cannot reclaim input VAT, so it suits businesses with few purchases. Cash accounting means you only pay VAT once customers have paid you, which helps if you are often waiting on invoices. Annual accounting reduces the number of returns. Run the numbers on your own figures rather than following what someone in a different trade recommends.
Do I need to buy accounting software?
You need software that can keep the required digital records and submit returns to HMRC, but that does not have to mean a full accounting package. Bridging software connects an existing spreadsheet to HMRC and satisfies the requirement, provided the links between your records and the return are digital rather than manual retyping. HMRC publishes a list of compatible products. Choose before your first digital return is due, and do a dry run rather than discovering problems on the deadline.

Related guides

VAT Registration and Thresholds

Value Added Tax (VAT) is a tax on the supply of most goods and services in the UK. Once your taxable turnover exceeds the registration threshold, registration is compulsory — but you can also register voluntarily before reaching it.

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Making Tax Digital

Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system by requiring businesses and individuals to keep digital records and submit tax information using compatible software. MTD for VAT is already mandatory for all VAT-registered businesses. MTD for Income Tax Self Assessment is being phased in from April 2026.

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Sole Trader vs Limited Company

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Business Record Keeping

Keeping good business records is both a legal requirement and essential for running your business effectively. HMRC can inspect your records for up to six years — and poor records can result in tax investigations, penalties, and unnecessary stress.

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Companies House Filing Requirements

Every private limited company in the UK must make certain filings at Companies House. Missing deadlines can result in automatic financial penalties and, eventually, your company being struck off the register. This guide covers the key obligations.

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Disclaimer

The information on this page was correct at the time of writing. Amounts, thresholds, and rules may change. Always check the latest official guidance.