Making Tax Digital is a UK government initiative requiring businesses to keep digital records and submit tax returns through HMRC-compatible software.
Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system. Since April 2022, all VAT-registered businesses (regardless of turnover) must keep digital records and submit VAT returns through MTD-compatible software. This means you cannot use spreadsheets alone or submit VAT returns manually through the HMRC website - you must use software that digitally links your records to the VAT return submission. Key MTD requirements include maintaining digital records of supplies made and received, the VAT rate applicable to each transaction, the time of supply and the value of supply. Digital links must connect all stages of the record-keeping and filing process - no manual re-keying of data is permitted. MTD for Income Tax Self Assessment is being phased in from April 2026 for self-employed individuals and landlords. Xero is fully MTD-compliant, and SortBooks ensures your bookkeeping meets all MTD requirements by maintaining digital records, correctly categorising VAT and enabling direct submission to HMRC.
SortBooks automates the bookkeeping processes related to mtd (making tax digital) by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing mtd (making tax digital), SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
VAT is a consumption tax charged on goods and services at each stage of production and distribution. Businesses collect VAT on sales and reclaim VAT on purchases, remitting the net amount.
HMRC is the UK's tax authority responsible for collecting taxes, administering benefits, enforcing customs regulations and overseeing Making Tax Digital.
In bookkeeping, compliance refers to meeting all legal and regulatory requirements for financial record keeping, tax reporting and lodgement obligations set by your tax authority.
A tax return is the formal document lodged with your tax authority reporting your income, deductions and tax payable for a specific period, usually annually.
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