MTD for VAT: What Counts as a Digital Link (and Why Copy and Paste Does Not)

Copy and paste is not a digital link. HMRC says it in those words in VAT Notice 700/22: it “does not consider the use of ‘cut and paste’ or ‘copy and paste’ to select and move information, as a digital link”. So if your VAT figures start in a spreadsheet and reach your filing software because somebody highlighted a cell and pasted it, the return can be arithmetically perfect and still break the Making Tax Digital rules. HMRC's compliance factsheet CC/FS69 puts a price on it: a penalty of between £5 and £15 for every day on which you do not meet the requirement.

Registration is no longer where the risk sits. GOV.UK now states flatly that all VAT-registered businesses should be signed up for Making Tax Digital for VAT, so the compliance question has moved on. What HMRC checks today is the plumbing: whether the records exist digitally, and whether the data moves between programs without a human hand in the middle. That second requirement is the one businesses fail quietly, because a broken digital link is invisible. Nothing rejects. Nothing bounces. The return files, the payment clears, and the breach sits there every quarter until someone opens a compliance check.

What Making Tax Digital for VAT actually requires

There are three obligations, and they are separate. Businesses tend to satisfy the first, assume that covers the rest, and get caught by the third.

• Keep specified records digitally. A defined list of data must be held in what the notice calls your electronic account.
• Use functional compatible software. The notice defines this as “a software program or set of software programs, a product or set of products, an application or set of applications” that can record and preserve digital records, provide HMRC with returns from the data held in those records through the API platform, and receive information from HMRC through the same platform.
• Move the data by digital link. Where more than one program is involved, the transfer between them must itself be digital.

Note the phrase “set of software programs”. You are not required to buy one all-in-one accounting package. A spreadsheet is explicitly allowed as a component: the notice accepts that a spreadsheet “may not be able to perform the other functions listed above” but confirms “this can still be a component of functional compatible software”. What you cannot do is join those components together by hand.

The rules were extended from April 2022 to VAT-registered businesses with taxable turnover below the registration threshold, which is currently £90,000. Voluntary registration does not buy you an exemption. If you are registered, you are in.

The filing deadline is unchanged by MTD. GOV.UK states it is “usually one calendar month and 7 days after the end of an accounting period”, and that is also the payment deadline. Work your boxes through with the VAT return calculator before you file, then check the chain that produced them.

What a digital link is — and what it is not

HMRC's definition in CC/FS69 is one sentence: “A digital link is where you transfer or exchange data electronically between software programs, apps or products.” The notice adds the rule that catches people out. Once data has entered your functional compatible software, any further transfer, recapture or modification of that data must be done using digital links. It is not enough for the first system to be digital. Every hop after that counts too.

HMRC gives a list of acceptable methods and says the list is not exhaustive.

Two things on that list surprise people. Emailing a spreadsheet is fine, provided the recipient imports it rather than retypes it. Handing over a memory stick is fine, for the same reason. The test is not how modern the method looks. It is whether the data moves as data.

The rule bites at the boundary, not inside a single program. Typing a purchase invoice into your bookkeeping software in the first place is manual entry into your digital records, and that is permitted — the record has to end up digital, not arrive digitally. The obligation starts once the figure is in the system.

Where the chain breaks: a worked example

Dele runs a coffee shop and files quarterly. His quarter ends 31 August 2026, so his return and payment are due by 7 October 2026. His process looks tidy.

He takes the till Z-read each night and types the day's takings into a sales spreadsheet. Standard-rated takings for the quarter come to £96,000 including VAT. Dividing by six gives output tax of £16,000 on a net value of £80,000. He enters his purchase invoices in a second spreadsheet, which totals input tax of £4,320. He then opens his bridging tool, copies £16,000 out of one sheet, pastes it into Box 1, copies £4,320 out of the other, pastes it into Box 4, and the tool works out Box 5 as £11,680. He files. HMRC takes the money. Nothing goes wrong.

Except two of his transfers were paste operations, and both happened after the data was already inside his software. Typing the Z-read into the sales sheet is acceptable — that is original manual entry. Pasting from the sales sheet into the bridging tool is not, and neither is pasting from the purchases sheet. On CC/FS69's stated range of £5 to £15 for every day on which the requirement is not met, a habit like this is not a rounding error. The factsheet does not explain how HMRC works out the number of days, so treat the range as the exposure rather than as a sum you can predict, and fix the mechanism instead.

The fix costs Dele nothing. He adds a small summary tab whose cells reference the sales and purchases sheets by formula, and points the bridging tool at that tab so it reads the values rather than receiving them by hand. Same figures, same £11,680, same deadline — and now every hop after the initial keying is a link.

Building a bridging arrangement that holds up

Bridging software is a legitimate answer, not a workaround. HMRC describes it as “a digital tool that incorporates the relevant Making Tax Digital APIs needed to connect accounting software to HMRC systems”, and GOV.UK's software guidance lists it as one of two acceptable routes: a compatible package that both keeps digital records and files, or bridging software connecting non-compatible software such as spreadsheets to HMRC.

Ruth sells homeware online and files quarterly, quarter ending 30 September 2026, return due 7 November 2026. Her chain has four components and no keystrokes between them.

• Her sales platform exports a CSV of transactions each week.
• The CSV imports into a sales workbook.
• A VAT summary sheet pulls totals from the sales workbook and the purchases workbook by formula.
• An API-enabled add-in reads the summary sheet and files the return.

For the quarter she has standard-rated sales of £142,500 net, giving output tax of £28,500, plus £18,000 of zero-rated sales carrying no VAT. Input tax on purchases comes to £9,240. Box 5 is £28,500 less £9,240, so she pays £19,260 by 7 November 2026.

The figures are no different from a business doing it by hand. What differs is that every arrow between the boxes is a CSV import, a formula or an API call. If HMRC asks Ruth to demonstrate the chain, she can point at each one. That is the real test: not whether the answer is right, but whether you can show the route it travelled.

If you are on the flat rate scheme the arithmetic changes but the linking rules do not — run your figures through the flat rate VAT calculator and then check the chain the same way. And before you build anything around supplier data, it is worth confirming the invoices feeding it are valid with the VAT invoice checker.

What must be kept digitally — and what need not

The notice sets out four categories for your electronic account.

Now the relief, which is more generous than most people assume. The notice is clear that you do not have to hold everything digitally. Records not specified in the notice and not needed to complete the return stay outside the requirement. Records the law requires you to keep in their original form — a C79 import VAT certificate, for instance — are not converted into a digital obligation. The detail behind margin scheme calculations sits outside it. On the flat rate scheme, purchases other than capital expenditure goods do not need to be recorded digitally. And where you make an adjustment, only the total adjustment has to go into the electronic account; the calculation underneath it does not.

There are two easements worth knowing because they remove real friction:

• Petty cash. Individual purchases with a VAT-inclusive value below £50 can be recorded as a single total rather than one by one, with each such entry capped at a VAT-inclusive value of £500. If you have £1,180 of small receipts in a quarter, that is at least three entries, not one.
• Mixed rate supplies at a single price. Where a customer pays one inclusive price for items at different rates, you can record the total value and the total output tax due rather than splitting the supply.

Separately from the digital rules, VAT records must be kept for at least six years, or ten years under the One Stop Shop scheme. Digital record-keeping does not shorten that. It only changes the form the required data has to take.

What HMRC looks at on a compliance check

CC/FS69 is short and reads like a checklist, which is exactly what it is. On a check, HMRC looks at whether you use functional compatible software, whether the required records are held digitally in your electronic account, whether data moves between programs by digital link, and whether you used the checking function in your software before filing.

The penalties attached to each are set out below.

These are separate from the late submission regime, which has run for VAT periods starting on or after 1 January 2023 and works on points. A quarterly filer reaches the threshold at four points and then receives a £200 penalty, with a further £200 for each subsequent late submission while at the threshold. Annual filers hit the threshold at two points, monthly filers at five. A late return and a broken digital link are two different problems with two different price tags, and you can have both at once. The VAT number validator is a quick way to sanity-check supplier details before they reach records you are relying on.

If following the rules genuinely is not practical for you, exemption exists and is applied for, not assumed. HMRC grants it where it is not practical to use digital tools for reasons such as age, disability or location, where the business is run entirely by practising members of a religious society whose beliefs are incompatible with using electronic communications, or where the business is subject to an insolvency procedure. You apply through VAT general enquiries with your VAT registration number, business name, principal place of business and the reasons. Carrying on with copy and paste and hoping is not an exemption.

MTD for VAT is not MTD for Income Tax

The two regimes share a name and almost nothing else. MTD for VAT covers VAT-registered businesses, quarterly VAT returns and the VAT records listed above. Making Tax Digital for Income Tax is a separate regime with its own scope, its own start dates and its own quarterly updates, covering sole traders and landlords rather than VAT registration. If that is the one you are worried about, our guide to Making Tax Digital for Income Tax covers it properly, and the MTD sign-up service outage piece explains the practical scramble around it. Being compliant for VAT tells you nothing about your position for income tax, and vice versa. Plenty of sole traders will end up inside both.

A twenty-minute check on your own chain

Open your last filed return and work backwards through every figure, the way you would trace a wire. For each box, write down the program the number came from, then the program before that, then how it moved. You are looking for one word: paste. If you find it anywhere after the point where data first entered your software, that is the break, and the fix is almost always a formula, an export or an add-in rather than a new accounting package.

Then check the easy wins. Are your designatory details actually in the software, including the schemes you use? Are petty cash groupings under £500 an entry? Is anyone emailing you a figure in the body of an email rather than as an attachment you import? A number typed from an email is not a link, however digital the email was.

If you also run a limited company, the same discipline is worth applying to the rest of your filings — our guides to paying corporation tax and self assessment deadlines cover the dates that sit either side of your VAT quarters, and new registrations will find the groundwork in the beginner's guide to self-employed tax. For the underlying rules in full, read VAT Notice 700/22 and HMRC's factsheet CC/FS69, and check the current position on GOV.UK's Making Tax Digital for VAT page.