What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is HMRC's initiative to move all tax reporting to digital systems. Since April 2022, all VAT-registered businesses with a taxable turnover above £85,000 have been legally required to keep digital records and submit VAT returns through MTD-compatible software.
From April 2026, MTD for Income Tax Self Assessment (ITSA) is also being rolled out for sole traders and landlords. Not sure whether it applies to you yet? Our free MTD checker tells you in under a minute.
What you need to do
- 1Keep digital records of all your VAT transactions — purchases, sales, and adjustments
- 2Submit VAT returns directly via MTD-compatible software (not HMRC's own portal)
- 3Store records digitally for at least 6 years
How Finovo handles MTD automatically
When you connect your bank accounts and create invoices in Finovo, all the data needed for your VAT return is captured automatically. When your filing deadline approaches:
- 1Open Taxes → VAT Return in the sidebar
- 2Review the calculated figures — Finovo shows a full breakdown by tax rate
- 3Click Submit to HMRC — Finovo sends the return directly via the MTD API
No spreadsheets. No bridging software. No manual data entry.
VAT schemes supported
Finovo supports the three main UK VAT schemes:
- Standard (accrual) accounting — VAT is due when you invoice, not when you're paid
- Cash accounting — VAT is due when you receive or make payment
- Flat Rate Scheme — for eligible small businesses (turnover under £150,000)
Common MTD mistakes to avoid
- Missing the deadline — late submissions incur penalty points under the new penalty regime. Keep the UK tax deadline calendar to hand
- Not reconciling before submitting — always reconcile your bank first so figures match
- Submitting from a bridging-only tool — this doesn't count as keeping full digital records
Ready to file with Finovo?
Start a free 60-day trial on the Professional plan and connect your bank account in under 5 minutes. Your first VAT return is pre-populated automatically.