Making Tax Digital in Business Central: HMRC Integration and VAT Returns

Are you ready for Making Tax Digital (MTD)? Microsoft Dynamics 365 Business Central gives UK businesses a connected way to manage digital VAT records, retrieve VAT obligations and submit VAT returns electronically to HMRC.

Making Tax Digital for VAT is now an established part of UK tax reporting. Since April 2022, all VAT-registered businesses have been required to keep digital records and submit VAT returns using MTD-compatible software. For businesses still relying heavily on spreadsheets or disconnected accounting systems, moving to a connected ERP can reduce repetitive administration and improve visibility across financial and tax processes.

This guide explains how Microsoft Dynamics 365 Business Central supports Making Tax Digital, how the HMRC connection works, how to set up MTD for VAT, how VAT returns are submitted, and how Business Central can help finance teams manage VAT reporting more efficiently.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is HMRC's programme for moving tax administration towards digital record keeping and digital reporting. For VAT, businesses must keep relevant records digitally and use compatible software to submit VAT returns to HMRC.

Business Central supports the UK MTD for VAT requirements through its UK-specific VAT functionality. Businesses can use the system to work with VAT obligations, prepare VAT returns and submit them electronically to HMRC.

MTD is also expanding beyond VAT. From 6 April 2026, MTD for Income Tax applies to qualifying sole traders and landlords above the relevant income threshold, with the qualifying-income thresholds reducing in later years. MTD for Income Tax is separate from the MTD for VAT functionality discussed in this guide.

Does Business Central Support Making Tax Digital?

Yes. Microsoft Dynamics 365 Business Central supports Making Tax Digital for VAT in the UK. Its UK localisation provides functionality for retrieving VAT obligations, preparing VAT returns, submitting returns to HMRC and viewing relevant VAT information.

For finance teams, this means VAT reporting can be managed from the same ERP environment used for accounting and financial management. Instead of moving VAT figures between separate systems, businesses can work with their financial and VAT information within Business Central.

Business Central also provides a scalable foundation for businesses that want to connect VAT reporting with wider finance, purchasing, sales and operational processes.

Why Use Business Central for Making Tax Digital?

Business Central brings MTD for VAT into a wider financial management environment. This can help businesses reduce repetitive administration while giving finance teams greater visibility over VAT reporting and related financial information.

• Digital VAT records: Business Central keeps financial and VAT-related information within the ERP environment, supporting digital record keeping for MTD for VAT.

• Electronic VAT submission: VAT returns can be submitted electronically to HMRC using Business Central's MTD functionality.

• Less manual data entry: Finance teams can work from VAT data already held in Business Central instead of repeatedly transferring figures between systems.

• Better VAT visibility: Finance users can review VAT obligations, returns, liabilities and payments within the Business Central environment.

• Connected financial processes: VAT reporting works alongside accounting, purchasing, sales and other financial processes managed in the ERP.

• Scalable finance management: Businesses can extend their use of Business Central as their financial, operational and reporting requirements grow.

How Does Business Central HMRC Integration Work?

Business Central connects its UK MTD functionality with HMRC so businesses can retrieve VAT information and submit VAT returns electronically.

The overall MTD workflow can be understood as:

Business transactions → VAT entries → VAT return preparation → HMRC VAT obligation → VAT return submission → HMRC response

The connection is configured through the relevant HMRC VAT service connection in Business Central. Once the setup and authorisation requirements are completed, finance users can work with VAT obligations and returns directly from Business Central.

This connected approach reduces the need to manually copy VAT figures into a separate HMRC submission process and gives finance teams a more structured way to manage VAT reporting.

Businesses can also connect Business Central with other applications and services as part of a wider digital finance strategy. See our Dynamics 365 Business Central integration guide to explore common integration scenarios.

How to Set Up Making Tax Digital for VAT in Business Central

Business Central provides a structured process for configuring MTD for VAT. The setup combines the correct UK VAT configuration with an authorised HMRC service connection and appropriate VAT reporting settings.

1. Review Your VAT Configuration

Start by reviewing your VAT setup in Business Central. VAT posting groups, VAT rates, transaction configuration and reporting settings should accurately reflect how your business operates.

A well-configured VAT structure helps Business Central produce accurate VAT reporting and ensures the information submitted to HMRC reflects the underlying business transactions.

2. Set Up the HMRC VAT Service Connection

Business Central provides an HMRC VAT Setup process for configuring the connection required for MTD for VAT. The relevant service connection can then be authorised so Business Central can exchange the required VAT information with HMRC.

3. Complete HMRC Authorisation

The authorised user completes the HMRC authorisation process so Business Central can communicate with HMRC for the relevant VAT services.

Once authorisation is completed, the Business Central environment is ready to work with the relevant VAT obligations and reporting processes.

4. Configure VAT Reporting

Configure the VAT reporting process in Business Central according to the business's VAT reporting requirements. The VAT report configuration should reflect the relevant VAT return boxes and reporting structure.

5. Retrieve VAT Obligations

After the HMRC connection has been authorised, Business Central can retrieve VAT obligations from HMRC. These obligations help finance teams identify the VAT reporting periods that need to be completed.

6. Prepare and Submit the VAT Return

The finance team can prepare the VAT return using the relevant Business Central VAT information, review the figures and submit the return electronically to HMRC.

Business Central supports the digital submission process while giving finance users the opportunity to review the VAT information before submitting the return.

How Does Business Central Submit VAT Returns to HMRC?

Business Central uses its UK MTD functionality to communicate with HMRC for VAT reporting. After the relevant VAT return has been prepared, the user can submit it electronically through the Business Central workflow.

The process typically involves:

• Reviewing the relevant VAT obligation.

• Preparing the VAT return in Business Central.

• Checking the VAT figures and return boxes.

• Submitting the return to HMRC.

• Reviewing the submission response.

• Monitoring VAT liabilities and payments where required.

This creates a connected VAT reporting process because the return is prepared using financial information already maintained in Business Central.

For businesses looking to modernise wider financial operations alongside MTD, Business Central ERP can bring finance, purchasing, sales, inventory and reporting into one connected platform.

What Information Can Business Central Retrieve From HMRC?

Business Central's MTD functionality can work with information such as VAT obligations, VAT returns, VAT liabilities and VAT payments, depending on the relevant functionality and configuration.

This gives finance teams a clearer view of the relationship between VAT returns submitted to HMRC and the associated VAT reporting information managed within Business Central.

Keeping this information within the same ERP environment can also make it easier for finance teams to review VAT activity alongside their wider financial records.

Business Central HMRC Integration: Key Features

Business Central's MTD functionality provides several capabilities for UK VAT reporting, including:

• HMRC service connection: Business Central can connect to HMRC for the relevant MTD VAT services.

• VAT obligation retrieval: Finance users can retrieve VAT obligations from HMRC and work with the relevant reporting periods.

• Electronic VAT submission: VAT returns can be submitted electronically from Business Central.

• VAT return visibility: Users can work with VAT return information within Business Central.

• VAT payment information: Relevant VAT payment information can be retrieved from HMRC.

• VAT liability visibility: Businesses can review VAT liability information as part of their VAT reporting process.

• Connected financial management: MTD for VAT works alongside Business Central's wider finance and accounting capabilities.

How Does Business Central Support Group VAT for MTD?

Microsoft Dynamics 365 Business Central provides VAT Group Management functionality to help businesses manage VAT reporting across multiple companies within a VAT group.

VAT group members can submit their VAT information to the group's representative company in Business Central, helping bring VAT reporting into a connected and structured process. The representative company can then manage the group's VAT return process with the relevant tax authority.

For organisations managing multiple legal entities, Business Central provides a centralised platform for financial management, VAT reporting and intercompany processes. This can help finance teams improve visibility, reduce manual consolidation and manage group-level VAT processes more efficiently.

The exact setup depends on the group's VAT structure and reporting requirements, so businesses should configure Business Central's VAT Group Management and MTD processes according to their specific operating model.

What are the Requirements for MTD in Business Central?

Before implementing MTD for VAT in Business Central, businesses should review the following areas:

• A UK Business Central environment with the relevant UK localisation and VAT functionality.

• Correct VAT posting and reporting configuration.

• A valid VAT registration and appropriate HMRC setup.

• Authorisation for the Business Central HMRC service connection.

• Correct VAT return configuration.

• Appropriate user permissions for VAT reporting and submission.

• A defined process for reviewing VAT data before submission.

Businesses using Business Central on-premises can also review connectivity and technical configuration requirements as part of their implementation planning. This helps ensure the Business Central environment is ready to communicate with HMRC services.

Business Central Online vs On-Premises for HMRC Integration

Both Business Central Online and On-Premises can support MTD for VAT. The main difference is how the technical environment is managed and configured.

Businesses can select the deployment approach that best fits their technology, security, operational and integration requirements. For on-premises environments, implementation teams should also review connectivity between Business Central and HMRC services.

Troubleshooting Business Central HMRC Integration

Business Central provides the functionality needed for HMRC VAT reporting, and most MTD setup issues can be addressed by reviewing authorisation, VAT configuration and connectivity. The following checks can help finance and technical teams resolve common issues efficiently.

HMRC Authorisation Issues

Review the HMRC authorisation process if Business Central cannot retrieve or submit VAT information. Confirm that the relevant authorisation has been completed and that the Business Central HMRC service connection is correctly configured.

VAT Configuration Issues

Review VAT posting groups, VAT rates and reporting configuration when VAT figures do not match expectations. Correct VAT configuration helps Business Central produce accurate reporting based on the underlying transactions.

Connection Timeouts

For on-premises Business Central environments, review network and firewall configuration if communication with HMRC services is interrupted or a timeout occurs.

VAT Obligation Issues

If an expected VAT obligation is not available, review the HMRC connection, reporting period and VAT setup. This helps identify whether the issue relates to the reporting configuration or the information available from HMRC.

VAT Return Validation

If a VAT return requires further review before submission, check the relevant VAT entries, reporting configuration and return figures in Business Central. This gives finance teams a structured process for validating the return before it is submitted to HMRC.

How Can You Prepare Business Central for MTD Go-Live?

A successful MTD implementation starts with preparation. Before moving to live VAT submissions, finance and implementation teams should validate the Business Central configuration and reporting process.

• Review VAT registration and reporting requirements.

• Validate VAT posting groups and tax configuration.

• Review VAT return reporting configuration.

• Complete HMRC service connection and authorisation.

• Check user permissions and responsibilities.

• Retrieve and review VAT obligations.

• Validate the VAT return preparation process.

• Review Group VAT requirements where applicable.

• Confirm Online or On-Premises deployment requirements.

• Define a process for reviewing and resolving submission issues.

These steps help businesses establish a reliable MTD process and give finance teams greater confidence when moving to live VAT reporting.

Can You Test Business Central's HMRC Integration Before Go-Live?

Business Central provides a structured environment for configuring and reviewing MTD for VAT processes before live submissions. Businesses should validate their VAT configuration, reporting setup, user permissions and HMRC authorisation as part of their implementation and go-live process.

HMRC and Microsoft document specific considerations around MTD testing and VAT submissions. Implementation teams should therefore follow the supported Business Central and HMRC procedures when validating the solution before live reporting.

Who Should Use Business Central for Making Tax Digital?

Business Central can be a strong fit for UK businesses that want to combine MTD-compatible VAT reporting with wider financial and operational management.

• Growing businesses: Companies moving beyond spreadsheets or basic accounting systems can combine VAT reporting with broader financial and operational management.

• Multi-entity businesses: Organisations managing several companies can use Business Central to manage financial information across their business structure and support appropriate VAT reporting processes.

• International traders: Businesses dealing with international purchasing and sales can manage their wider financial and VAT processes within Business Central.

• Finance teams reducing administration: Businesses looking to reduce repetitive VAT preparation and reporting tasks can benefit from a connected ERP-based process.

• Businesses planning for growth: Companies can extend Business Central across finance, sales, purchasing, inventory and other business processes as their requirements evolve.

Key Benefits of Using Business Central for Making Tax Digital

Using Business Central for MTD can provide benefits beyond submitting a VAT return electronically. It brings VAT reporting into a broader ERP environment where finance teams can manage related financial information and business processes.

• Connected financial data: VAT reporting is linked to the financial transactions managed within the ERP.

• Reduced manual processing: Finance teams can reduce the need to repeatedly transfer VAT figures between systems.

• Improved VAT visibility: VAT obligations, returns, liabilities and payment information can be reviewed within Business Central.

• Better financial control: Finance teams can manage VAT reporting alongside accounting and other financial processes.

• Scalable finance operations: Businesses can combine MTD requirements with wider Business Central finance, purchasing, sales and operational processes.

• Centralised ERP platform: Businesses can manage multiple financial and operational processes within one connected Business Central environment.

Making Tax Digital in 2026: What UK Businesses Need to Know

MTD is continuing to expand beyond VAT. From 6 April 2026, Making Tax Digital for Income Tax applies to qualifying sole traders and landlords whose qualifying income is above £50,000 for the relevant tax year. The threshold is scheduled to reduce to more than £30,000 from April 2027 and more than £20,000 from April 2028.

MTD for Income Tax requires compatible software to create and maintain digital records, send quarterly updates and submit the relevant tax return. This is separate from Business Central's MTD for VAT functionality.

For businesses using Business Central, it is therefore important to distinguish between MTD for VAT and MTD for Income Tax when reviewing future tax and software requirements.

Businesses should review their own tax structure and reporting obligations to determine which MTD requirements apply to them.

Why Choose Business Central for MTD and Financial Management?

MTD is one part of a wider finance transformation strategy. For businesses that are already looking to modernise accounting, financial reporting, purchasing or operational processes, Business Central provides an opportunity to manage these requirements through one connected ERP platform.

Instead of treating tax reporting as a separate activity, businesses can connect VAT processes with their broader financial management environment. This can help finance teams improve visibility, reduce repetitive administration and build more scalable processes as the organisation grows.

Business Central also supports a broad ecosystem of Microsoft technologies and business applications, making it suitable for organisations that want to extend their ERP environment as their digital requirements evolve.

How Dynamics Square Can Help With Business Central HMRC Integration

Configuring MTD successfully involves more than connecting Business Central to HMRC. Your VAT configuration, reporting structure, finance processes, deployment environment and wider ERP requirements should work together.

Dynamics Square UK can help businesses assess their Business Central environment and plan the right approach for MTD, VAT reporting and wider finance transformation.

Our consultants can help with Business Central implementation, financial configuration, integrations, migration and ongoing support based on your business requirements.

If you are considering Business Central for your finance transformation, you can also explore our Business Central implementation methodology to understand the wider implementation process.

For businesses connecting Business Central with other applications, our Dynamics 365 Business Central integration guide covers common integration scenarios and considerations.

Final Thoughts

Making Tax Digital for VAT is now an established part of UK VAT reporting, and businesses need reliable digital processes for maintaining records and submitting VAT returns to HMRC.

Microsoft Dynamics 365 Business Central provides UK-specific MTD functionality that helps businesses manage VAT obligations, prepare VAT returns and submit VAT information electronically to HMRC. Because MTD sits within the wider ERP environment, finance teams can also manage VAT reporting alongside accounting, purchasing, sales and other financial processes.

Business Central's flexibility makes it suitable for businesses with different financial structures, including organisations managing multiple entities and VAT group processes. With the right configuration and implementation approach, businesses can build a connected and scalable finance environment around their MTD requirements.

As HMRC continues to expand Making Tax Digital beyond VAT, businesses should also understand the difference between MTD for VAT and the newer MTD for Income Tax requirements introduced from April 2026.