Making Tax Digital for VAT applies to VAT-registered businesses, including travel agents and tour operators. At its simplest, it requires businesses to keep specified VAT records digitally and submit VAT Returns to HMRC using compatible software.
For many businesses, that is relatively straightforward.
For a travel business operating under the Tour Operators’ Margin Scheme (TOMS), however, there is an important distinction between meeting the Making Tax Digital requirements and having accounting records that are actually capable of supporting the VAT treatment of the business.
They are not necessarily the same thing.
What Making Tax Digital for VAT actually requires
VAT-registered businesses are generally required to follow Making Tax Digital for VAT unless they qualify for an exemption.
The business must maintain an electronic account using functional compatible software and submit the VAT Return to HMRC digitally through the relevant API.
For sales included in the VAT Return, the digital records normally include the tax point, the net value of the supply and the VAT rate charged.
For purchases included in the return, the records normally include the tax point, the value of the supply and the amount of input VAT being claimed. Adjustments required for the VAT Return also form part of the digital records.
This does not mean that every accounting document you possess must become a digital record. Invoices and other supporting records still have to be retained under the ordinary VAT record-keeping rules, but the Making Tax Digital rules distinguish between those supporting documents and the information that must form part of the electronic account.
Making Tax Digital does not mean using one piece of software
his is one of the more commonly misunderstood parts of MTD.
Your entire digital accounting record does not have to sit inside one application.
A business can use several pieces of software, and spreadsheets can form part of the system. A spreadsheet may, for example, hold digital records and connect to HMRC through bridging software.
Where information that forms part of the electronic account is transferred between software products, the required transfer must normally be made through a digital link.
That can include linked spreadsheet cells, CSV imports and exports, downloads and uploads, automated transfers and APIs.
Copying a number from one system and pasting it manually into another is not regarded by HMRC as a digital link.
So the rule is not: “Spreadsheets are prohibited.” They are not.
The more useful question is whether the collection of systems being used creates a reliable digital journey from the underlying records through to the VAT Return.
Making Tax Digital for VAT works differently with TOMS
This is where the position becomes particularly interesting for travel businesses.
HMRC specifically provides that, for margin schemes, businesses do not have to keep the additional scheme records or the calculation of the margin VAT digitally for Making Tax Digital purposes.
Those records and calculations still need to be maintained, but they do not have to form part of the MTD electronic account itself.
That distinction matters.
It means a travel business could technically satisfy its Making Tax Digital obligations without its accounting software containing every piece of information needed to explain the TOMS calculation.
That does not make such a setup a good accounting system.
It simply means that MTD compliance and good TOMS accounting are two different tests.
Why I still want the underlying travel records properly structured
This is where I take a more demanding approach than the minimum required merely to transmit a VAT Return.
TOMS requires its own records. HMRC’s TOMS guidance requires businesses to retain the information needed to support the relevant selling prices, direct costs and different categories of supply used in the scheme calculations.
For a travel business, I therefore want the accounting records structured so that the transactions behind that calculation remain identifiable.
That may include information relating to departures, supplier costs, the nature of the supply and whether the business is acting as principal or agent.
Not because Making Tax Digital itself says that every one of those pieces of information must sit inside the electronic VAT account.
Because reconstructing them from bank statements, booking systems, emails and spreadsheets months later is a dreadful way to run travel accounting.
There is a considerable difference between: “The VAT Return successfully went through the MTD software.” and: “We can explain why the VAT Return contains these figures.”
The latter is the standard that matters when somebody later asks questions.
MTD-compliant software does not make the VAT treatment correct
This is another distinction worth making.
HMRC-compatible software provides the mechanism for keeping the required digital records and submitting VAT Returns.
It does not determine whether your business should be operating under TOMS.
It does not decide whether you are acting as principal or disclosed agent.
It does not determine whether a particular supplier cost belongs within the travel accounting treatment you are applying.
These decisions form part of the wider VAT and TOMS treatment for travel businesses, which accounting software cannot determine by itself.
And it does not make an incorrect VAT code correct simply because the return was successfully transmitted to HMRC.
A business can therefore have beautifully digital records and still have the wrong VAT treatment.
Making Tax Digital is a record-keeping and submission framework. It is not a substitute for VAT analysis.
Where Xero fits for travel businesses
At LAS Accounting, I require Xero for all travel clients.
That is not because Xero magically understands TOMS. It does not.
I require it because the accounting system needs to be capable of supporting a consistent structure for bookkeeping, VAT review and travel-specific reporting throughout the year.
That becomes particularly important where a travel business is doing some or all of its own bookkeeping.
The objective is that bookkeeping completed throughout the VAT period is already building the records needed for review — rather than discovering at the filing deadline that the necessary information lives in three spreadsheets, somebody’s booking platform and an email written six months ago.
Software should support the accounting structure.
It cannot create that structure for you.
I look in more detail at choosing accounting software for travel agents in a separate guide.
What about spreadsheets?
Spreadsheets themselves are not the enemy. They can form part of an MTD-compliant system, and HMRC expressly allows this where the relevant requirements are met. I have written separately about why spreadsheets become difficult under TOMS when they become the main system for managing travel-specific accounting information.
The problem begins when a spreadsheet becomes a parallel accounting universe.
One spreadsheet contains departures.
Another calculates VAT.
Xero contains different transaction descriptions.
The booking system contains the supplier information.
Someone then manually transfers totals between them shortly before the VAT deadline.
At that point, the issue is not simply whether one particular spreadsheet technically satisfies Making Tax Digital.
The issue is whether anybody can still follow the accounting process from beginning to end.
That is particularly important under TOMS, where the quality of the underlying records matters long after the Submit button has been pressed.
MTD compliance is the starting point, not the finish line
For most VAT-registered businesses, Making Tax Digital is now simply part of normal VAT compliance.
For travel agents and tour operators, the more important question is whether the digital accounting setup also supports the particular VAT regime under which the business operates.
A system can be technically MTD-compliant while still being poorly designed for TOMS.
Conversely, a well-designed accounting system should make the VAT position easier to review throughout the year, preserve the information needed for the travel-specific treatment and reduce the amount of reconstruction required later.
That is why I do not treat Making Tax Digital as a software problem.
It is an accounting-process problem with a software requirement attached to it.
If your VAT return goes to HMRC electronically but nobody can explain where the underlying travel figures came from, the fact that the transmission was digital is not especially reassuring.
For travel businesses, the objective should be both: Making Tax Digital compliance and accounting records that actually support the VAT treatment being applied.
Where to get more detail
HMRC’s own overview of Making Tax Digital and how to sign up cover the general requirements. What they won’t tell you is how to structure travel-sector transactions so the digital record actually supports a TOMS margin calculation under review, not just a filed return.
If you’re not confident your current setup meets the standard Making Tax Digital for VAT actually requires for a margin scheme business, it’s worth checking before your next return rather than after an enquiry. Talk to a specialist.
