Making Tax Digital for VAT: Digital Links and Bridging Software Explained
Making Tax Digital for VAT has applied to all VAT-registered businesses since April 2022, so most people know they need MTD-compatible software. The part that still catches businesses out is the 'digital links' requirement — the rule about how data is allowed to move between different parts of your record-keeping.
What digital records actually means
MTD for VAT requires certain records — your VAT-able supplies, purchases, and the figures used to calculate each box of your VAT return — to be kept digitally, in software that can connect to HMRC. This does not necessarily mean one single piece of software; it means an unbroken digital trail from your underlying records through to the submitted return.
The digital links rule
Once data enters your digital records, any transfer or exchange of that data between different pieces of software must happen through a digital link — an electronic or automated transfer — rather than a manual process. Manually retyping figures from one spreadsheet into another, or copying and pasting a total by hand, breaks the digital link and falls outside MTD compliance, even if the final number submitted is completely correct.
What counts as a valid digital link
- Linked cells between spreadsheets or tabs, using formulas rather than pasted values.
- Automated file transfer, such as an export/import via CSV or XML.
- An API connection between two pieces of software.
- Emailing a spreadsheet and importing it directly, without retyping figures.
Where bridging software fits in
Bridging software exists specifically for businesses that keep records in spreadsheets rather than dedicated accounting software. It takes the relevant figures directly from your spreadsheet and submits them to HMRC through the required digital connection, without you needing to manually enter them into a separate return form. Provided your spreadsheet formulas feed into it digitally, this route stays fully compliant.
Penalties for non-compliance
As with MTD for Income Tax, VAT filing under MTD uses a points-based penalty system for late submissions, alongside separate penalties for failing to keep digital records or maintain digital links at all. An enquiry that finds manual re-keying breaking the digital chain can result in penalties even where the VAT figures themselves were accurate.
Practical next steps
- Map out how your VAT figures actually move from source records to your VAT return, step by step.
- Replace any manual retyping or copy-and-paste step between systems with a digital link.
- If you use spreadsheets, confirm your bridging software can pull figures directly from them without manual entry.
- Review your digital record-keeping annually, especially after changing accounting software or adding a new sales channel.
