Making Tax Digital for VAT with Business Central: A Guide for UK Finance Teams
Since April 2022, every VAT-registered business in the UK must follow HMRC’s Making Tax Digital (MTD) for VAT rules: keep digital records and submit VAT returns using MTD-compatible software. Many companies still meet these rules with spreadsheets and bridging tools, which adds manual work and risk. Business Central includes MTD for VAT as standard in its UK version, so you can file your VAT return straight from your ERP.
Key takeaways for leaders
- MTD for VAT applies to all VAT-registered UK businesses, whatever their turnover.
- Business Central’s UK version connects directly to HMRC, so there is no need for bridging software.
- You can retrieve VAT obligations, submit returns and view payments and liabilities without leaving Business Central.
- Keeping the whole VAT process inside one system protects the “digital links” HMRC requires.
- Late submissions earn penalty points, so reminders of upcoming obligations help protect the business.
What MTD for VAT Requires
- Digital records: VAT-relevant transactions must be kept in digital form.
- Digital links: data must move between systems digitally. Copying and pasting figures by hand between spreadsheets and filing software is not allowed.
- Compatible software: VAT returns must be submitted to HMRC through software that uses HMRC’s MTD interface.
- Penalties: for VAT periods starting on or after 1 January 2023, late returns earn penalty points, and late payments incur penalties and interest.
How Business Central Handles MTD
The UK version of Business Central includes a Making Tax Digital feature that connects to HMRC through the HMRC VAT Setup service connection. Once it is set up and authorised, you can:
- Retrieve VAT obligations from HMRC, so you always know which periods are due.
- Get reminders about obligations that are approaching or overdue.
- Prepare and submit the VAT return from the VAT statement in Business Central.
- View submitted returns, VAT payments and liabilities recorded by HMRC.
Because the VAT return is calculated from the VAT entries created when invoices are posted, the digital link from transaction to return is unbroken. Learn more in Microsoft’s Making Tax Digital documentation.
Getting It Right: Practical Tips
- Check your VAT posting setup. Correct VAT business and product posting groups are the foundation of a correct VAT return.
- Map VAT statement lines to the nine boxes of the UK VAT return and test the result against a manual calculation.
- Reconcile before you submit: compare the VAT return with the VAT control accounts in the general ledger.
- Restrict who can submit returns to HMRC, and use approvals where appropriate.
- Keep the HMRC authorisation current. Authorisations expire periodically, so renew them before the filing deadline.
Beyond VAT: What Comes Next
Making Tax Digital is only the first step in the digitalisation of UK tax. MTD for Income Tax is being introduced for sole traders and landlords from April 2026, and the government has confirmed that e-invoicing will become mandatory for B2B VAT invoices from 2029. A single ERP system with clean VAT data puts you in a strong position for every next step.
Frequently Asked Questions
Is Business Central compatible with Making Tax Digital?
Yes. The UK version of Business Central includes Making Tax Digital for VAT, so you can retrieve VAT obligations and submit VAT returns to HMRC directly from the system.
Do we need bridging software for MTD with Business Central?
No. Business Central connects directly to HMRC through its built-in MTD feature, so no separate bridging software is needed.
Does MTD for VAT apply to small businesses?
Yes. Since April 2022, MTD for VAT applies to all VAT-registered businesses, including those that registered voluntarily below the VAT threshold.
Making Tax Digital is easiest when VAT data never leaves your ERP. Business Central gives you a direct, auditable route from invoice to HMRC.
Would you like us to check your VAT setup or MTD configuration in Business Central? Contact us or book a call with one of our UK-hours experts.
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