What is Making Tax Digital for Employers?

Making Tax Digital (MTD) is HMRC's programme to move the UK tax system onto a fully digital footing. While MTD for VAT and MTD for Income Tax Self Assessment have received the most attention, employers need to understand how digital record-keeping requirements affect PAYE, Real Time Information (RTI), and broader payroll compliance.

Current State: RTI and Digital Submissions

UK employers already submit payroll data to HMRC digitally through RTI. Every time you pay an employee, a Full Payment Submission (FPS) must be sent to HMRC on or before payday. This has been mandatory since 2013 and forms the foundation of digital employer reporting.

What MTD Adds for Employers

MTD extends the digital-by-default principle beyond submissions to record-keeping:

Digital Records: Employers must maintain digital records of all payroll transactions, employee details, tax codes, and deductions. Paper records followed by manual data entry no longer meet the standard.

Digital Links: Where data moves between systems — for example, from a time and attendance system to payroll — the link must be digital. Manual re-keying breaks the digital chain and is not compliant.

Quarterly Updates: For businesses within MTD for Income Tax, there is an interaction between employer obligations and director self-assessment. Understanding where payroll data feeds into quarterly updates is essential for owner-managed businesses.

Preparing Your Business

1. Audit your payroll data flow from employee onboarding through to RTI submission. Identify any manual re-keying steps.

2. Ensure your payroll software maintains a complete digital audit trail that HMRC can inspect.

3. Review integrations between time and attendance, expenses, and payroll systems for digital link compliance.

4. Plan for API-based submissions — HMRC is progressively moving towards API-first interfaces.

How Mellow Helps

Mellow's payroll module is built API-first, with native HMRC integration via our Accounted Bridge. Every data point from employee onboarding through to RTI submission is digitally linked with a complete audit trail. There is no manual re-keying anywhere in the chain, making MTD compliance automatic rather than an additional burden.