# Making Tax Digital (MTD) for SaaS: What UK and Global Sellers Need to Know > Making Tax Digital explained for SaaS founders. Who it applies to, VAT and Income Tax obligations, MTD-compatible software, and how MoR handles it for you. - **Author**: Aarthi Poonia - **Published**: 2026-06-09 - **Category**: Tax, Compliance, UK - **URL**: https://dodopayments.com/blogs/making-tax-digital-uk-saas --- Making Tax Digital (MTD) is HM Revenue and Customs' (HMRC) initiative to digitize the UK tax system. It requires businesses to keep digital records and submit returns using MTD-compatible software rather than HMRC's online form portal. MTD started with VAT in 2019 and has been progressively expanded to Income Tax Self Assessment (ITSA) and (planned) Corporation Tax. For SaaS businesses, MTD has two main angles: how does it affect your own UK tax compliance, and what do your UK customers need from your billing software to stay compliant. This guide covers both. ## What MTD requires At a high level, MTD requires three things: 1. **Digital record keeping**: store transaction-level records (sales, purchases, VAT) digitally in compatible software 2. **Digital links**: data must flow between software systems without manual re-entry (no copy-pasting between spreadsheets) 3. **Digital submission**: returns are submitted through MTD-compatible software via HMRC's API, not the online portal You cannot submit MTD returns by typing numbers into HMRC's website. The submission has to come from software that integrates with HMRC's API. ## MTD for VAT ### Who is in scope All VAT-registered businesses are in scope, regardless of turnover. This includes: - UK-resident businesses voluntarily registered for VAT - UK-resident businesses with taxable turnover over the VAT threshold (currently GBP 90,000) - Non-UK businesses registered for UK VAT (e.g., foreign SaaS selling digital services to UK consumers) ### What you have to do - Keep digital records of all VAT-relevant transactions - Use MTD-compatible accounting or bridging software - Submit VAT returns through the software - Maintain digital links between your transaction records and your VAT return If you sell SaaS to UK customers and you are registered for UK VAT, MTD for VAT applies to you whether you are UK-based or not. ### Frequency VAT returns under MTD follow the same frequency as before MTD: usually quarterly, sometimes monthly or annually depending on your scheme. MTD changed the submission method, not the cadence. ## MTD for Income Tax Self Assessment (ITSA) MTD for ITSA is the bigger deal for individual founders, sole traders, and landlords. ### Who is in scope and when MTD for ITSA is being phased in based on income thresholds: - Since April 2026: sole traders and landlords with combined income over GBP 50,000 are in scope - From April 2027: those with combined income over GBP 30,000 will be brought in - HMRC has consulted on extending further but timelines below GBP 30,000 remain under review ### What you have to do under MTD for ITSA - Keep digital records of business income and expenses - Submit quarterly updates to HMRC summarizing income and expenses - Submit an end-of-period statement at the end of the tax year - Submit a final declaration that consolidates all income sources This is a significant change from the annual Self Assessment return. Quarterly cadence means more touchpoints with HMRC and tighter record-keeping. For SaaS founders trading as sole traders (common in early-stage), MTD for ITSA likely applies once you cross the income threshold. For SaaS operating through a UK limited company, ITSA does not apply directly (the company files Corporation Tax), but the directors may still have personal ITSA obligations on dividend income, salary, and other earnings. ## MTD for Corporation Tax HMRC has consulted on extending MTD to Corporation Tax but has not yet set a confirmed start date. UK limited companies should expect MTD for Corporation Tax to land later this decade. Plan accordingly: choose accounting software that is MTD-ready for VAT today and likely to be MTD-ready for Corporation Tax when the rules take effect. ## What "MTD-compatible software" means MTD-compatible software has HMRC-approved integration with HMRC's API. The software: - Stores transaction-level records digitally - Maintains digital links between records (no manual re-entry between systems) - Submits returns to HMRC via the API - Receives confirmation of receipt back from HMRC Common MTD-compatible options for VAT include Xero, QuickBooks, FreeAgent, Sage, and most modern UK accounting platforms. "Bridging software" exists for businesses that keep records in Excel: the bridging tool reads the spreadsheet and submits to HMRC, while still maintaining digital links. For SaaS billing systems, the relevant question is whether your billing data exports into an MTD-compatible accounting system cleanly. A SaaS billing platform that produces a clean transaction log with VAT rate, VAT amount, customer location, and invoice details can be imported into any MTD-ready accounting tool. ## MTD for foreign SaaS selling to UK customers If you are a non-UK SaaS selling digital services to UK consumers, you are likely already registered for UK VAT under the post-Brexit rules (digital services to UK consumers require UK VAT registration if you are not established in the UK). That means MTD for VAT applies to you. The practical implications: - You need an MTD-compatible system to file UK VAT returns - Your billing data has to capture the right detail per transaction (customer location, VAT rate applied, VAT amount) - Your VAT returns are submitted quarterly through the API - HMRC penalties for non-compliance apply equally to non-UK registered businesses The easier path is to sell through a [merchant of record](https://dodopayments.com/blogs/what-is-a-merchant-of-record) that handles UK VAT registration and MTD-compliant filing on your behalf. The MoR is the legal seller, registered for UK VAT, and files its own MTD-compliant returns covering all underlying suppliers (you). > The UK MTD machinery is well-designed but expensive to comply with as a non-UK SaaS. Most founders we work with would rather pay a slightly higher headline rate and have the legal seller burden absorbed than maintain quarterly MTD filings themselves. > > \- Ayush Agarwal, Co-founder & CPTO at Dodo Payments ## MTD penalties HMRC moved to a points-based penalty system for MTD returns in 2023: - Each late submission earns a penalty point - Accumulating enough points (the threshold depends on filing frequency) triggers a GBP 200 penalty - Late payment of VAT also accumulates separate penalties Penalty points reset after a period of compliance, but accumulating them adds friction and audit risk. The cost of staying compliant with MTD is far lower than the cost of remediating after penalties accumulate. ## How Dodo Payments handles UK VAT Dodo Payments operates as a merchant of record for SaaS founders selling globally. For UK customers specifically: - We register for and remit UK VAT on transactions where it applies - We calculate the correct VAT rate based on customer location and product type - We file the UK VAT returns through MTD-compatible infrastructure on our end - You receive a clean payout in your preferred currency without managing UK VAT registration yourself This is part of the broader [tax compliance](https://docs.dodopayments.com/features/tax) coverage that handles 190+ tax jurisdictions on your behalf. UK VAT and MTD are just one country's compliance regime within that. ## Action items for SaaS founders ### If you are a UK-resident SaaS - Confirm your VAT registration status and threshold - Adopt MTD-compatible accounting software now - Verify your billing system exports cleanly into your accounting tool - Plan for MTD for ITSA (and eventually Corporation Tax) - File quarterly on time to avoid penalty points ### If you are a non-UK SaaS selling to UK customers - Determine whether you have UK VAT registration obligations - Either adopt MTD-compatible filing on your end or - Use a merchant of record that handles UK VAT and MTD for you ### If your customers are UK SaaS users - Make sure your billing system produces VAT-detailed invoices that they can import into their accounting tool - Provide clear invoice copies with customer name, VAT number (if B2B), VAT amount, and invoice reference - Be ready to provide additional invoice detail if a customer's MTD audit requires it ## FAQ ### What is Making Tax Digital? Making Tax Digital is HMRC's initiative to digitize UK tax administration. It requires businesses to keep digital records and submit tax returns using MTD-compatible software via HMRC's API, rather than the online portal. ### Who has to comply with MTD for VAT? All VAT-registered businesses, including non-UK businesses registered for UK VAT. The previous turnover threshold was removed in 2022, so any VAT-registered business is in scope regardless of turnover. ### Does MTD apply to non-UK SaaS companies? Yes, if you are registered for UK VAT (which is required for non-UK businesses selling digital services to UK consumers). MTD's submission requirements apply equally to UK-resident and non-UK-resident registered businesses. ### What software counts as MTD-compatible? Software that has HMRC-approved API integration for the relevant tax (VAT, ITSA). Common examples include Xero, QuickBooks, FreeAgent, and Sage. Bridging tools exist for businesses that keep records in Excel. ### How does a merchant of record affect MTD obligations? If you sell through a merchant of record, the MoR is the legal seller and registers for UK VAT in its own name. The MoR handles MTD-compliant filing on the transactions it processed on your behalf. You do not have to register for or file UK VAT yourself for the sales the MoR handles. ## Conclusion Making Tax Digital is the new normal for UK tax compliance. For UK-resident SaaS, the path is clear: adopt MTD-compatible software and file quarterly. For non-UK SaaS selling to UK customers, the same obligations apply if you are UK-VAT-registered, which is often the bigger surprise. Using a merchant of record like [Dodo Payments](https://dodopayments.com) shifts UK VAT registration and MTD compliance to the MoR, removing one of the more burdensome compliance regimes from your stack. See [pricing](https://dodopayments.com/pricing). --- - [More Tax articles](https://dodopayments.com/blogs/category/tax) - [All articles](https://dodopayments.com/blogs)