MTD for VAT and outsourcing

The MTD for VAT basics

Since April 2022, all VAT-registered businesses in the UK — regardless of turnover — must keep digital records and file returns through HMRC-recognised MTD-compatible software. Bridging software is allowed but the underlying records must be digital and connected by “digital links”.

Who can use whose software?

An outsourced provider can prepare the return in:

• The client's existing software (Xero, QuickBooks, FreeAgent, Sage) — you grant the provider access; they reconcile and prepare the return; you review and file.
• The provider's own MTD-recognised software — useful for clients without a subscription. The deliverable is still MTD-compliant.
• Bridging software for spreadsheet-based records — legal and common; digital links between sheets are required.

Whose agent credentials file the return?

Best practice for a white-label arrangement: your firm remains the agent on HMRC's record and files the return under your firm's agent services account. The provider hands you a ready-to-submit return and you press file. This keeps HMRC's audit trail clean — there is one named agent the client is associated with.

It is also possible for the provider to file under your delegated credentials, but the agent of record remains your firm.

Digital links across firms

Where data moves between your software and the provider's, the link must be digital — CSV upload, API, or automated import — not retyped. Copy-paste is permitted in narrow circumstances but is no longer the “soft landing” default. Modern providers solve this by working directly in the client's software rather than moving data around.

MTD for Income Tax (ITSA) — April 2026

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 are mandated into MTD for Income Tax. The threshold drops to £30,000 from April 2027 and to £20,000 from April 2028. This is a substantial volume increase for any practice with self-employed clients.

Practical impact: practices that currently file an annual SA100 per client will move to quarterly submissions plus a final declaration — roughly a 5x increase in filing events. Many small practices will not have headcount for this and are already lining up outsourced capacity.

How to get MTD-ready with an outsourced provider

1. Confirm the provider files in HMRC-recognised software.
2. Agree the credential model: you file, or they file under your delegation.
3. Decide whose software hosts the digital records (theirs, yours, or the client's).
4. Make sure the DPA covers HMRC submissions explicitly.
5. For ITSA in 2026, agree pricing for quarterly submissions now — provider capacity will tighten.