HMRC, MTD VAT and compatible invoicing software
Making Tax Digital for VAT requires VAT-registered UK businesses to keep digital records and file returns through compatible software.
HM Revenue and Customs (HMRC) is the UK's tax authority, responsible for VAT, income tax, corporation tax and customs duties. Making Tax Digital (MTD) for VAT applies to all VAT-registered businesses: they must keep digital VAT records and file VAT returns using MTD-compatible software. The VAT registration threshold is currently £90,000 of taxable turnover. Important: 4invoices is not HMRC-recognised MTD software and does not submit VAT returns or connect to HMRC. It helps you create invoices with a VAT rate on each line, in any currency with an exchange rate, and download them as PDFs. You would need separate MTD-compatible software to file returns.
- HMRC: UK tax authority, which runs the MTD for VAT service.
- VAT registration threshold: £90,000 taxable turnover; MTD for VAT applies to all VAT-registered businesses.
- Digital records: invoices, receipts, VAT calculations must be in digital format from creation.
- Returns are filed through MTD-compatible software, not on paper.
How it works
You confirm your VAT registration with HMRC — the 9-digit VAT number (format GB123456789, plus the 12-digit format for SOE/SME identifiers). Without active VAT registration, you cannot legally charge VAT on sales nor reclaim input VAT on purchases.
You choose MTD-compatible software for your VAT returns from the list on GOV.UK. 4invoices is not on that list and does not connect to HMRC, so use it only for creating invoices and use separate recognised software (or your accountant) to file returns.
Every sale invoice should show the details HMRC requires: date, sequential number, your VAT number, customer name and address, description, quantity, unit price, VAT rate, VAT amount and total. With 4invoices you set the VAT rate on each line yourself and download a PDF; you choose the correct rate, it is not applied automatically.
Each VAT period, your MTD-compatible filing software (not 4invoices) submits the return to HMRC. Keep the confirmation HMRC gives you as proof of submission.
Payment of VAT due is via direct debit (preferred — VAT comes out automatically on the due date) or bank transfer. The due date is 1 calendar month and 7 days after the end of the VAT period (e.g. for the March quarter ending 31 March, payment is due 7 May).
Legal references
- Finance Act 2017, Sch 14 — Making Tax Digital framework.
- Value Added Tax Act 1994 (consolidated).
- HMRC Notice 700/22 — Making Tax Digital for VAT.
- HMRC software list — gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat.
Frequently asked questions
Do I need MTD if my turnover is below the VAT threshold?
MTD for VAT applies to all VAT-registered businesses, including those that registered voluntarily below the £90,000 registration threshold. The threshold determines when you must register for VAT, not whether MTD applies once you are registered. Check GOV.UK for current rules.
What are the UK VAT rates?
Standard rate 20% for most goods and services, reduced rate 5% for domestic fuel, energy, children's car seats and certain home improvements, zero rate 0% for most food, children's clothes, books, newspapers, public transport and prescription medicines. The reduced 5% rate is narrower than most EU countries (e.g. France 5.5%, Germany 7%) but the zero-rated list is broader (most food, all children's clothes including teen sizes).
What happens if I file the VAT return late?
HMRC operates a points-based penalty system since 2023 — one penalty point per late submission, four points triggers a £200 fixed penalty. Late payment penalties separately: 2% of unpaid VAT after 15 days late, additional 2% after 30 days, then daily interest at the Bank of England base rate + 2.5%. The penalty system is much harsher than the old default surcharge regime — businesses on quarterly returns should set up direct debit to avoid drift.
How does MTD work with Northern Ireland?
Northern Ireland follows the UK MTD VAT regime for domestic supplies but remains in the EU VAT system for goods (under the Northern Ireland Protocol). NI businesses file VAT returns through the same MTD for VAT service, but for cross-border NI-EU goods movements they have a unique XI VAT number (prefix XI instead of GB) used in EU intra-community supply declarations and VIES.
How long must I keep VAT records in the UK?
6 years from the end of the VAT period they relate to, per VAT Act 1994 s.62 and Sch 11. Digital records must be kept in a form HMRC can inspect; check GOV.UK for what counts as a compliant record. 4invoices does not provide an MTD audit trail or legally valid archiving, so keep your own copies of invoices and VAT records for the required period.
Can 4invoices file my VAT return with HMRC?
No. 4invoices is not HMRC-recognised MTD software and does not submit VAT returns or connect to HMRC. It lets you create invoices with a VAT rate per line, in any currency with an exchange rate, and download them as PDFs. There is a 6-month free trial with no card needed.