What are the new MTD for VAT requirements for 2025?

Team Nomi

Apr 26, 2025
6 minutes read

If you’re a business owner or self-employed, you’ve probably heard about Making Tax Digital (MTD) for VAT. But did you know that from April 2025, new rules will apply to even more businesses, including those earning under £90,000?

This means no more paper records, no more last-minute VAT calculations, and no more manual submissions. Instead, you must use digital software to track and submit your VAT returns. 

This change ensures that more businesses submit accurate VAT returns.

What is MTD for VAT?

MTD for VAT is a system where businesses must keep digital tax records and file VAT returns online using compatible software. 

Before 2025, businesses had to:

• Keep digital records of sales, purchases, and VAT calculations.
• Use MTD-compatible software to submit VAT returns.
• File VAT returns every quarter.

Understanding Making Tax Digital (MTD) is important for businesses preparing for digital tax compliance. If you want a detailed guide on how MTD works, who needs to comply, and the latest updates.

MTD for VAT Changes in 2025

Businesses must use HMRC-approved software for digital record-keeping and VAT submissions. Quarterly VAT returns will remain mandatory, and penalties will apply for non-compliance.

1. New Thresholds

From April 2025, the MTD for VAT rules will apply to all VAT-registered businesses, including those with an annual turnover below £90,000. Previously, only businesses earning above this threshold had to comply.

This change means that small businesses, freelancers, and sole traders will now be required to maintain digital VAT records and file returns using MTD-compatible software.

If your business is VAT-registered, you must comply, regardless of turnover. However, some exemptions exist for businesses with no internet access, religious objections, or certain disabilities.

2. Digital Record-Keeping

Under the 2025 changes, businesses must keep all VAT-related records in a digital format. This means you cannot rely on paper invoices or handwritten records. Instead, you must store:

• • Digital invoices and receipts – All purchase and sales invoices must be saved in a digital format (scanned copies or electronic invoices).
  • Sales and purchase records – Every transaction must be recorded, including dates, amounts, and VAT rates.
  • VAT calculations – Any VAT you charge or reclaim must be recorded using MTD-approved accounting software.

Records must be kept for at least six years, as HMRC may request them for compliance checks.

3. Software Requirements

To comply with MTD for VAT 2025, businesses must use HMRC-approved software. This means:

• • Paper records are no longer allowed – You cannot use spreadsheets or handwritten logs to track VAT.
  • MTD-compatible software is mandatory – The software must be able to record VAT transactions and submit returns directly to HMRC.
  • Direct connection to HMRC – The software must link to HMRC’s system, ensuring real-time updates and accurate VAT reporting.

4. Quarterly VAT Reporting Changes

Businesses must continue submitting VAT returns every three months, but with stricter digital reporting rules. Each return must include:

• • VAT transactions must be recorded digitally – Businesses must ensure every sale and purchase is logged in MTD-compatible software.
  • No manual entries – VAT returns must be filed automatically through HMRC-approved software, without manual calculations.
  • Accurate and timely submissions – Businesses must file on time to avoid penalties under HMRC’s new penalty points system.

By ensuring compliance with these changes, businesses can avoid penalties, simplify VAT management, and reduce tax errors.

Who Must Comply with MTD for VAT in 2025?

The following businesses must follow the new rules:

• • Sole traders (self-employed individuals).
  • Partnerships and limited companies.
  • VAT-registered businesses earning under £90,000.
  • Charities and non-profits (if VAT-registered).

Legislation and Timelines for MTD

• April 2019: MTD for VAT became mandatory for businesses with a turnover above £85,000.
• April 2022: MTD for VAT extended to all VAT-registered businesses.
• April 2026: MTD for Income Tax Self Assessment (ITSA) starts for sole traders and landlords earning over £50,000.
• April 2027: The MTD for ITSA threshold lowers to £30,000.

Staying updated on these changes ensures compliance and avoids penalties.

Steps to Prepare for MTD for VAT in 2025

To prepare for MTD for VAT in 2025, check if your business must comply based on VAT registration and turnover. Choose MTD-compatible software, ensure all VAT records are stored digitally, and understand the new quarterly reporting requirements to avoid penalties.

1. Check If You Need to Comply

• • If your business is VAT-registered, you must follow MTD for VAT rules.
  • Check your turnover. If it is under £90,000, you must comply from April 2025.

2. Choose MTD-Compatible Software

• Use HMRC-approved software such as:
  • • Nomi
    • Xero
    • QuickBooks
    • Sage
    • FreeAgent
• Ensure your software can store digital records and submit VAT returns.

3. Ensure Digital Record-Keeping

• • Scan paper receipts and invoices.
  • Store records electronically in a structured format.
  • Use cloud-based accounting tools for easy access.

4. Understand New Reporting Obligations

• • Submit VAT returns every three months.
  • Keep records for at least six years.
  • Ensure accuracy to avoid penalties.

Penalties for Non-Compliance with MTD for VAT in 2025

Failing to comply with MTD for VAT rules from April 2025 can result in penalties from HMRC. The government has introduced a new penalty points system to ensure businesses meet their digital VAT obligations.

1. Late VAT Return Submissions

Under the new system, businesses that fail to submit VAT returns on time will receive penalty points instead of an immediate fine.

2. Late VAT Payments

If businesses fail to pay VAT on time, they will face additional penalties based on how late the payment is:

• • Up to 15 days late – No penalty if the VAT is paid or a payment plan is arranged.
  • 16-30 days late – A 2% penalty of the VAT owed is charged.
  • 31+ days late – A 4% penalty of the outstanding amount applies.

Interest is also charged on overdue VAT payments at HMRC’s interest rate.

3. Failure to Use MTD-Compatible Software

Businesses that do not use HMRC-approved MTD software for VAT returns may face compliance checks and potential fines.

Looking for MTD-ready software for VAT? Nomi is the perfect solution for smooth VAT compliance. As HMRC-approved MTD software, Nomi helps businesses automate VAT calculations, submit returns digitally, and maintain accurate digital records, ensuring compliance with MTD for VAT 2025.

With Nomi, businesses can eliminate manual errors, file VAT returns directly to HMRC, and stay penalty-free by meeting all digital record-keeping requirements. 

Experience its advantages by signing up for a 30-day free trial, or you can book a free demo to see its features and functionalities in action. Whether you’re a sole trader, small business, or accountant, Nomi makes VAT reporting easy, efficient, and stress-free.

Note: Nomi does not offer accounting, tax, business, or legal advice. This blog is for general information only. For advice specific to your business, please consult a qualified accountant before acting on any of the information provided.