Making Tax Digital (MTD) is HMRC's initiative to modernise the UK tax system. Since April 2022, all VAT-registered businesses must keep digital records and submit VAT returns through MTD-compatible software. This means no more manual spreadsheets or paper records for VAT purposes. Your accounting software must be MTD-compliant, and your digital records must include specific information about each transaction.
Ensure your accounting software is MTD-compatible (Xero is fully compliant)
Set up digital record keeping for all transactions
Record the time of supply, value of supply and rate of VAT for each transaction
Maintain digital links between your records and VAT return submission
Do not manually transfer data between systems - use digital links only
Submit your VAT return directly through MTD-compatible software to HMRC
Keep digital records for at least 6 years
Businesses in United Kingdom operating under the VAT + MTD system must meet these compliance requirements set by HMRC:
Using spreadsheets without proper digital linking to MTD software
Manually copying figures from one system to another (breaks digital link requirement)
Not updating software to the latest MTD-compliant version
Assuming that using Xero alone makes you compliant without proper setup
Not keeping records in the required digital format
Ignoring MTD for Income Tax Self Assessment obligations starting in 2026
SortBooks connects to your Xero account and handles VAT + MTD compliance automatically. Every transaction is categorised with the correct tax treatment, bank feeds are reconciled in real-time and your HMRC-ready reports are always up to date. No more last-minute scrambles or manual data entry.
Every transaction gets the correct VAT + MTD code automatically - 97%+ accuracy from day one.
Generate compliant reports for HMRC at any time - no reconciliation needed.
Never miss a filing deadline. SortBooks tracks your obligations and reminds you in advance.
Yes. Xero is fully MTD-compliant for VAT. When you connect SortBooks to Xero, your entire bookkeeping workflow - from transaction categorisation to VAT return submission - meets MTD requirements automatically.
HMRC uses a points-based penalty system. You receive a point for each late submission. Once you reach the threshold (4 points for quarterly filers), you receive a financial penalty of GBP 200 for each subsequent late submission.
SortBooks maintains fully digital records in Xero with proper digital links. Every transaction is categorised with correct VAT codes, and VAT returns can be submitted directly to HMRC through Xero - no manual intervention needed.
Join thousands of United Kingdom businesses using AI to handle their bookkeeping and tax compliance.