Building HMRC-recognised software: payroll RTI and Making Tax Digital

The short answer

We designed and built Octopaye, payroll software for the temporary recruitment sector that is recognised by HMRC, processing 15,000 timesheets in under a minute and supporting PAYE, multiple company and payroll bureau models. Getting software recognised by HMRC for payroll RTI or Making Tax Digital means meeting yearly technical specifications, testing against HMRC systems, and budgeting for ongoing compliance. The filing connection is the smaller part of the build.

What building Octopaye taught us

Andy Jones, founder of Make IT Simple, has built and sold businesses himself and has a background in recruitment and umbrella payroll software. That context shaped our approach when we built Octopaye for the temporary recruitment sector.

We built Octopaye when RTI was brand new, as RTI became mandatory for most employers in April 2013. At the time we were finding bugs in HMRC’s own RTI service and API. HMRC also had to approve our P45 document format. HMRC publishes a design specification for software-produced P45s, the P45(Online), printed on plain A4 paper once the final Full Payment Submission has been made.

Those experiences lead to plain reasoning. Building against a government service that is itself new means some failures are not yours, so you need clear logging of exactly what was sent and received to tell your bug from theirs. Recognition covers documents you produce, not only submissions. HMRC’s specifications change each tax year, so a one-off build will not stay compliant.

Our Octopaye work page shows the kind of product that results from this approach.

Two routes to HMRC connection

The table below condenses the technical paths. HMRC’s API Sandbox does not support its XML APIs, so RTI payroll is not tested there. HMRC publishes RTI technical specifications per tax year, and the 2027-28 specifications were added on 6 October 2026.

Aspect	RTI payroll (XML)	MTD APIs (REST)
Transport	XML messages over HMRC services	HTTPS JSON with OAuth 2.0
Testing environment	Local Test Service, no Sandbox	API Sandbox available
HMRC status	Recognised by HMRC against yearly specs	Production access granted after review
Fraud prevention headers	Not a stated requirement	Required by law for VAT and ITSA
Annual change	New specifications each tax year	Endpoint changes communicated by HMRC

HMRC states it cannot recommend one product over another and is not responsible for problems with software you buy. For APIs, HMRC talks about granting production credentials rather than approving a product. This distinction matters when you describe your solution.

MTD routes to production in brief

Key facts for the MTD Income Tax and VAT paths, drawn from HMRC’s developer guide (HMRC and GOV.UK guidance checked 11 October 2026):

• MTD Income Tax: register a Sandbox application, create a test user, develop, create a Production application, test in the Sandbox and give HMRC the credentials.
• Complete the Production Approvals Checklist HMRC sends, and HMRC reviews the testing, including fraud prevention headers, plus the checklist.
• Test all endpoints in the minimum functionality standards and send the Sandbox application ID to HMRC’s Software Developer Support Team (SDSTeam).
• Minimum functionality includes fraud prevention header data, digital records users own and can export, quarterly updates for each mandated income source, tax liability estimate, year-end adjustments, losses, and submitting the return or directing to software that can.
• HMRC recognises full end-to-end, in-year, and end-of-year product types. Bridging products submit alongside existing record-keeping software and must be digitally linked to it. For MTD VAT, VAT Notice 700/22 is explicit that copy and paste is not a digital link.
• A quarterly update is due one month and 2 days after the end of the obligation period.
• MTD VAT minimum is fraud prevention headers plus Retrieve VAT obligations and Submit VAT return endpoints. Contact SDSTeam within 2 weeks of completing API testing.
• HMRC says it takes 10 working days to advise the outcome, asks for 2 questionnaires, and to be listed the product must be for retail or commercial use with a live submission after production access.
• Authentication uses OAuth 2.0 authorisation code grant with Government Gateway sign-in. Access tokens last 4 hours, refresh tokens stop after 18 months, standard rate limit 3 requests per second per application (HTTP 429 if exceeded).
• Fraud prevention headers are required by law for VAT and Income Tax Self Assessment APIs. Providers sending incorrect or missing data may be fined and blocked. A “Correct” test status is not compliance.

June 2026 payroll guidance change

Until June 2026, GOV.UK published a “PAYE recognition for payroll software developers” page. It asked developers to email SDSTeam with a vendor ID, HMRC aimed to respond within 6 weeks, and recognition tied to that tax year’s RTI specifications. In June 2026 that page was redirected to the PAYE Online developer collection, which does not describe a recognition procedure. The current process should be confirmed with HMRC’s Software Developer Support Team.

MTD Income Tax timetable and closed window

GOV.UK confirms MTD for Income Tax applies to sole traders and landlords with qualifying income over £50,000 from 6 April 2026, over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028. HMRC’s developer guide states it is no longer accepting production credential requests for new 2026-27 quarterly update products because that market window has closed.

This affects product roadmaps. A quarterly-update only product for the 2026-27 cycle cannot gain official production access. A full end-to-end or bridging product may still have a route, but confirm the current position with SDSTeam before committing budget. The phased thresholds give smaller trader products a longer lead time before mandate.

Budget and timeline for a build

UK agency rates run from £75 to £150 per hour. An entry-tier build of a simple filing tool sits between £10,000 and £50,000. A mid-tier product with calculation logic, multiple payroll models and reporting falls in the £50,000 to £150,000 range.

The elements that push cost up are a complex calculation engine, support for bureau or multi-company models, and the need to maintain compliance each tax year. Our bespoke software developer service covers builds of this type, and our SaaS development service supports ongoing operation after launch. For payroll automation detail, see our article on automating payroll, billing and timesheets. Readers should confirm their tax and legal position with their adviser.

Frequently Asked Questions

Does HMRC approve software?

HMRC does not endorse products. It does check specific outputs: when we built Octopaye, HMRC had to approve our P45 document format. For payroll, HMRC says software is recognised by HMRC once it meets the RTI specifications for the tax year. For APIs, HMRC grants production access after reviewing your Sandbox testing and checklist. You should confirm the current procedure with the Software Developer Support Team, as guidance changes and the old payroll page was withdrawn in June 2026.

How long does HMRC recognition take?

For MTD VAT, HMRC advises it takes 10 working days to advise the outcome after you finish API testing and contact SDSTeam. Payroll RTI previously aimed for a six week response, but the published page was withdrawn in June 2026. The current payroll timeline should be confirmed directly with SDSTeam before you plan a launch, as no replacement procedure is published.

What are fraud prevention headers?

HMRC requires fraud prevention header data by law for the MTD VAT and Income Tax APIs. The headers help identify who sends each request. Providers that repeatedly send incorrect or missing data may be fined and blocked. A “Correct” test status from HMRC’s test API is not the same as full compliance in production, so build proper logging and checks.

Can I build bridging software for MTD?

Yes. HMRC recognises bridging products for MTD Income Tax that submit quarterly updates and the annual return alongside existing record-keeping software. The product must be digitally linked to that software, so a real data connection is needed between the systems. For MTD VAT, HMRC’s VAT Notice 700/22 states that copy and paste does not count as a digital link.

What does building HMRC-recognised payroll software involve?

Beyond the filing connection, you must build a calculation engine that handles edge cases, produce an audit trail, and re-test against HMRC’s yearly specifications. We built Octopaye for temporary recruitment payroll, processing 15,000 timesheets in under a minute. Design rejected submissions to be visible and fixable, and confirm the current recognition process with SDSTeam before starting development.

If you are preparing to build software that files with HMRC, we can help you scope the work and avoid wasted effort. Speak to our bespoke software developer service or reach our contact page to discuss your plans. You may also estimate outlay with our cost estimator tool.