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Common MTD Mistakes

Learn how to avoid MTD mistakes and stay compliant

Avoid common MTD mistakes. Learn the top errors UK businesses make when filing digitally for VAT or income tax, and how to stay compliant with HMRC.

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Making Tax Digital (MTD) is transforming how businesses handle their taxes but the transition hasn’t been without its hiccups. As more businesses adapt to digital tax filing, it’s easy to fall into common traps that can lead to errors, missed deadlines, and even penalties.

In this guide, we break down the most common MTD mistakes, explain why they happen, and show you how to avoid them.

Mistake 1: Using the Wrong Software

One of the most common MTD pitfalls is relying on software that isn’t HMRC-recognised. Many businesses assume their existing system is compliant or continue using spreadsheets without the proper bridging software. This can lead to rejected submissions and non-compliance.

How to Avoid It:

  • Check HMRC’s official list of approved MTD-compatible software.
  • Confirm your chosen tool supports your obligations – VAT, ITSA, or both.
  • Avoid generic or outdated tools that lack direct API integration with HMRC.

See our [MTD Compliant Software Guide] for recommended options.

Mistake 2: Missing Deadlines

Quarterly submissions are a big change for businesses used to filing once a year. Under MTD, missing deadlines is no longer a minor slip HMRC’s points-based penalty system means repeated late filings quickly turn into fines.

How to Avoid It:

  • Set automated reminders within your accounting software.
  • Work with your accountant to monitor upcoming deadlines.
  • Familiarise yourself with MTD’s key dates to stay on track.

Mistake 3: Not Signing Up Properly

Using compliant software alone isn’t enough you must also formally register with HMRC for Making Tax Digital. If you don’t, your submissions won’t be recognised, even if you use the right software.

How to Avoid It:

  • Register through your Government Gateway ID before your first MTD return.
  • Wait for HMRC’s confirmation that your business is successfully signed up.
  • Follow our step-by-step sign-up guide to avoid common mistakes.

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Mistake 4: Manual Data Entry and Copy-Pasting

Typing figures in by hand or copy-pasting between spreadsheets and software might feel convenient, but under MTD it’s a compliance risk. HMRC requires a clear digital link from your original records through to your submission. Manual re-entry breaks that chain and could leave you exposed to errors, rejected filings, or non-compliance penalties.

How to Avoid It:

  • Choose fully integrated accounting software that keeps records, calculations, and submissions digitally connected.
  • If you use spreadsheets, make sure you have HMRC-approved bridging software to handle submissions without manual re-entry.
  • Never retype or copy-paste data – keep the full digital trail intact to meet HMRC’s standards and reduce mistakes.

Mistake 5: Ignoring Updates from HMRC

MTD is constantly evolving. Since launch, the rules for VAT have changed, and MTD for Income Tax (ITSA) is being phased in from 2026. Meanwhile, HMRC has scrapped plans for MTD for Corporation Tax, but is continuing to explore other ways to modernise company tax.

Failing to stay informed can put your business at risk of missing new deadlines, falling out of compliance, or overlooking opportunities to prepare.

How to Avoid It:

  • Subscribe to HMRC updates or sign up for Accounting Wise’s updates for plain-English guidance.
  • Check deadlines and thresholds each year – especially for Income Tax and VAT.
  • Don’t assume old processes still apply – HMRC regularly refines its requirements, and staying proactive helps you avoid last-minute surprises.

Mistake 6: Assuming It Doesn’t Apply to You

One of the most common MTD mistakes is assuming you’re outside the rules. Many small businesses and landlords believe MTD won’t affect them but that’s rarely the case. If you’re VAT-registered (even voluntarily) or your income falls within the new MTD for Income Tax thresholds, you are required to comply. Waiting until HMRC contacts you is risky and often leads to missed deadlines.

How to Avoid It:

  • Check your VAT status – MTD for VAT has been mandatory for all VAT-registered businesses since April 2022.
  • Know your income thresholds – if your combined self-employment and property income is over £50,000 from April 2026 (or over £30,000 from April 2027), you’ll need to join MTD for ITSA.
  • Prepare early – if you’re close to the threshold, put digital systems in place now so you’re ready when MTD applies.

Mistake 7: Not Keeping Proper Digital Records

MTD isn’t just about how you file it’s also about how you keep your records. Some businesses submit returns through compliant software but still rely on paper records or non-compliant systems behind the scenes. This breaks HMRC’s rules and increases the risk of errors.

How to Avoid It:

  • Record transactions digitally in real-time – including sales, expenses, VAT, and income.
  • Use digital tools like bank feeds, receipt capture, and linked invoicing to keep data accurate and up to date.
  • Secure and back up your records – cloud-based systems reduce the risk of data loss and give you an audit trail HMRC will accept.

Mistake 8: Trying to DIY Without Support

MTD is more than just software it involves tax rules, quarterly deadlines, and strict compliance requirements. Trying to manage it alone often leads to missed submissions, incorrect filings, or unnecessary penalties.

How to Avoid It:

  • Work with an MTD-compliant accountant who can manage filings and keep you compliant.
  • Get expert help setting up and testing your software before deadlines hit.
  • Make use of built-in support within your chosen software — or contact our team at Accounting Wise for ongoing guidance and peace of mind.
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  • Your software is properly set up
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  • You avoid costly mistakes and HMRC penalties

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MTD Mistakes FAQs

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Common mistakes include missing VAT return deadlines, using non-compatible software, manually copying data between systems, failing to keep digital records, and misunderstanding what qualifies as a “digital link.” Many businesses also struggle with updating their processes to stay compliant with MTD rules.

Missing an MTD deadline, such as failing to submit a VAT return on time, can result in penalties under HMRC’s points-based system. The more deadlines you miss, the more likely you are to face fines. It also affects your compliance status with HMRC, which may lead to further scrutiny.

Yes, HMRC can issue penalties for MTD non-compliance. This includes not using compatible software, submitting incorrect VAT information, or not maintaining proper digital records. Repeated errors can lead to fines, interest charges, and potential investigations.

You can use spreadsheets, but only if they’re connected to HMRC through bridging software that meets MTD requirements. Simply maintaining records in Excel without a compliant digital link to HMRC is not allowed under MTD rules.

No, manual copying and pasting is not considered a valid digital link under MTD. All data transfers between systems (e.g. from bookkeeping software to VAT filing tools) must be automated or use proper digital links to ensure accuracy and compliance.

A digital link is a transfer of data between software programs without manual intervention (like retyping or copying and pasting). It’s required under MTD to ensure that VAT records and returns are accurate and traceable, reducing the risk of human error.

If you’ve made a mistake, you can correct it on your next VAT return if the error is below the reporting threshold (currently £10,000). For larger errors, you must notify HMRC directly using a separate form. Your MTD software should help you keep a clear record of any corrections made.

Submitting inaccurate VAT returns can lead to penalties under HMRC’s error correction regime. If HMRC believes the error was careless or deliberate, the penalties can be substantial. Keeping digital records and reviewing submissions before filing helps avoid costly mistakes.

To stay compliant, use HMRC-recognised MTD software, keep your records up to date, ensure digital links are in place, and set reminders for filing deadlines. Working with an accountant familiar with MTD can also help you avoid costly errors and stay on top of your VAT obligations.

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