Digital links for Making Tax Digital explained

Published Monday 15 December 2025

Table of contents

• What are digital links?
• Examples of MTD digital links
• What doesn't count as a digital link?
• Ways to submit MTD digital links
• Using software for Making Tax Digital
• Getting ready for Making Tax Digital with Xero
• FAQs on digital links with Making Tax Digital

Key takeaways

• Set up digital links between your software to move data automatically – no manual typing needed. These connections are required by law for Making Tax Digital.
• Use cloud accounting software rather than spreadsheets to keep all your transactions in one place. This avoids the hassle of connecting multiple programs and the risk of broken formulas.
• Remember that copying and pasting or typing data manually don't count as digital links under MTD rules. Make sure your systems use approved methods like API connections, file imports, or automatic transfers.
• Get ready for MTD early by picking HMRC-approved software, starting to keep digital records, and talking to your accountant. This helps you avoid penalties of up to £400 for each non-compliant return.

What are digital links?

Digital links are electronic connections that automatically transfer data between different software programs or applications. They form the backbone of Making Tax Digital compliance.

Think of digital links as bridges between your business systems. When you record a sale in your point-of-sale software, a digital link sends that information straight into your accounting software – no retyping needed.

Why digital links are important:

• Accuracy: Automatic transfers mean no typing mistakes
• Efficiency: Save time by cutting out repetitive admin work
• Compliance: Meet HMRC's legal requirements for MTD
• Audit trail: Keep a clear record of how data moves through your systems

Examples of MTD digital links

Here are some ways to create digital links for MTD:

• Email transfers: Sending spreadsheets with your records to import into other software
• USB drives: Using USB drives or memory sticks to move data between systems
• File formats: Downloading and uploading files like XML and CSV
• Automatic transfers: API connections that move data automatically

You can find more information about what is accepted as a digital link on the HMRC website.

What doesn't count as a digital link?

Typing data manually doesn't count as a digital link under Making Tax Digital rules. This includes copy and pasting – MTD requires automatic data transfer between systems.

These don't count as digital links:

• Copy and paste: Copying manually between software programs
• Typing data: Entering information from one system into another by hand
• Screen transcription: Reading data from one screen and typing it into another

Ways to submit MTD digital links

You have three main options for creating digital links between your software systems for Making Tax Digital.

Spreadsheets with bridging software

You can use spreadsheets for MTD digital links if they connect properly to other systems.

How spreadsheets work as digital links:

• Automatic formulas: When you enter a transaction, it must automatically update totals in other cells – this counts as a digital link within the spreadsheet
• Connection to bridging software: Your spreadsheet must link to HMRC-approved bridging software to transfer data electronically
• File transfers: You can move data between spreadsheets using CSV or XML files

Risks with spreadsheet digital links:

• Broken formulas: Complex spreadsheets can break and cause digital link failures
• Multiple connections: Managing links between several spreadsheets gets complicated
• Manual errors: Uploading and downloading files creates more chances for mistakes

There's no deadline for stopping use of spreadsheets with bridging software. But as the legislation expands, maintaining digital links between multiple spreadsheets will become harder.

API connections between software

API connections create automatic digital links between different software programs. This is the most reliable way to transfer data for MTD.

How API digital links work:

• Automatic transfers: Data moves between systems without any manual steps
• Real-time updates: Information syncs instantly when you make changes
• No broken links: API connections are more stable than spreadsheet formulas

Many modern software programs have built-in API connections. For example, your point-of-sale system might connect directly to your accounting software through an API digital link.

Cloud accounting software

Cloud accounting software, like Xero, removes the need for multiple digital links by keeping all your data in one system.

Benefits for digital linking:

• No external links needed: All transactions stay in one place, so you don't need to connect multiple programs
• Built-in connections: Software like Xero has API links to HMRC already set up
• Less to manage: You don't need to worry about maintaining links between different systems

MTD-compliant software handles digital linking automatically. With accounting software like Xero, your data flows through the system without needing separate bridging software or file transfers.

What happens if your digital links break?

Broken digital links can lead to penalties. If your spreadsheet formulas break or your software connections fail, you're not meeting MTD requirements.

Potential penalties:

• Missing digital links: £400 fine for each non-compliant return
• Repeated failures: Additional penalties may apply for ongoing digital link problems

MTD-compliant software like Xero is HMRC-recognised and maintains digital links automatically, reducing the risk of connection failures.

Using software for Making Tax Digital

Cloud accounting software is the easiest way to comply with Making Tax Digital. It keeps all your transactions and reports in one place, so you don't need to connect multiple programs.

Main benefits:

• Everything in one place: All records stored together, no connecting needed
• Easy compliance: MTD-compliant returns are created easily with software
• Real-time updates: Live data keeps your finances accurate
• Less hassle: No need to manage multiple software programs

If it's your first time using Making Tax Digital software, it might take some getting used to. But once you're up and running, you'll likely find it easier and quicker to manage your tax and submit returns.

Getting ready for Making Tax Digital with Xero

Getting your business ready for MTD is easier if you start early. Xero's cloud accounting software handles digital links automatically, so you can focus on running your business instead of worrying about compliance.

Here's how Xero helps you prepare:

• Check when you need to start: Find out the start date for your business based on your income and business type.
• Set up Xero: Xero is HMRC-recognised and keeps all your records in one place. You won't need to manage multiple digital links between different programs – everything connects automatically.
• Start keeping digital records: Record all your transactions in Xero. The software maintains digital links for you, so your data flows through the system without manual transfers.
• Talk to your accountant: If you have an accountant or bookkeeper, discuss your MTD plan with them. They can help you set up Xero and manage your submissions.

With Xero, you don't need bridging software or spreadsheet connections. All of Xero's plans are compliant with MTD rules for both VAT and Income Tax, making compliance straightforward from day one.

FAQs on digital links with Making Tax Digital

Here are answers to some common questions about digital links.

What happens if my digital links are wrong?

If your digital links aren't working properly, fix them straight away. Contact HMRC if you've already filed your return with an error, as mistakes can lead to penalties.

Can I get a digital link exemption for MTD?

No, you can't get an exemption from using digital links. Digital links are a legal requirement under Making Tax Digital rules for both VAT and Income Tax. However, some businesses may be exempt from Making Tax Digital – if you qualify for an exemption, you won't need to use digital links at all.

How much does Making Tax Digital software cost?

It depends on which software you pick. Some providers offer basic, free MTD-compatible software, while others have paid plans with more features. All of Xero's plans are compliant with MTD rules for both MTD for VAT and MTD for Income Tax. Compare your options to find what works for your budget and business.