Making Tax Digital for Income Tax Self Assessment (MTD ITSA) arrives in April 2026. If your agency turns over more than £50,000 from self-employment (sole trader or partnership), you will be required to send quarterly updates to HMRC. Not annual returns. Four updates per year, plus an end-of-period statement and a final declaration.
The good news? You can automate MTD ITSA updates for your agency without hiring an accountant to do the data entry. The software handles the heavy lifting. Your job is to keep the records clean and check the numbers before they go out.
This guide walks through exactly what MTD ITSA means for agency founders, which software to use, and how to set up a quarterly process that takes you less than an hour per quarter.
What MTD ITSA Actually Requires from Agency Founders
MTD ITSA replaces the traditional Self Assessment tax return with a digital-first system. Instead of filing one annual return by 31 January, you submit:
- Four quarterly updates, summary of income and expenses for each quarter (not full accounts, just totals)
- An end-of-period statement (EOPS), submitted after the fourth quarter, confirming the figures are final
- A final declaration, similar to the current Self Assessment, covering any additional income (dividends, property, savings interest) and claiming reliefs
For a typical agency founder who is a sole trader or in a partnership, the quarterly updates cover your self-employed income and expenses. If you also have dividend income from a limited company (because you operate through one), that goes on the final declaration, not the quarterly updates.
HMRC's timeline for MTD ITSA rollout is:
- April 2026, mandatory for self-employed individuals and partnerships with gross income over £50,000
- April 2027, mandatory for those with gross income over £30,000
Agencies turning over less than £30,000 can volunteer early, but it's not required. Most agency founders reading this will fall into the first wave if your agency is billing £50k+ per year.
Why Automating Quarterly Updates Matters for Agency Owners
Your time is worth more than data entry. If you are billing clients at £100-£200 per hour, spending three hours every quarter manually compiling figures for HMRC is a poor leverage of your time. Especially when the software can do it automatically.
Automation also reduces errors. Manual spreadsheet entries get mistyped. Categories get mislabelled. HMRC's MTD system expects digital records, not spreadsheets pasted into a web form. Using compatible software means the data flows directly from your bank feed to the quarterly update, with minimal human intervention.
And there is a compliance angle. If HMRC audits your quarterly updates, they will ask for the underlying digital records. If you have been keeping them properly in MTD-compatible software, you are fine. If you have been scribbling on the back of a napkin and typing numbers into the HMRC portal at the last minute, you are not fine.
Which Software Can Automate MTD ITSA Updates for Your Agency?
Not all accounting software is MTD ITSA compatible. HMRC maintains a list of approved software vendors. For agency founders, the practical options are:
Xero
Xero has been MTD VAT compatible for years and is now MTD ITSA ready. It connects to your bank accounts, categorises transactions automatically using bank rules, and generates the quarterly summary figures that feed directly into HMRC. For an agency with 5-20 staff and multiple income streams (retainers, project fees, ad spend pass-through), Xero's bank reconciliation features save hours per month.
FreeAgent
FreeAgent is popular with sole traders and small agencies because it is built around the UK tax system. It handles MTD ITSA updates natively, including the quarterly submissions and the final declaration. FreeAgent also includes a built-in tax timeline showing exactly when each submission is due. If you are a sole trader agency founder with straightforward finances, FreeAgent is often the simplest option.
QuickBooks
QuickBooks Online supports MTD ITSA for sole traders and partnerships. Its bank feed automation is solid, and the mobile app lets you snap receipts on the go (useful for agency expenses like client lunches, travel, and software subscriptions).
Sage
Sage Accounting supports MTD ITSA, though it is less common among small agencies than Xero or FreeAgent. If you already use Sage for your bookkeeping, stick with it. If you are choosing fresh, Xero or FreeAgent are more agency-friendly.
All four options connect to HMRC via APIs. Once you authorise the connection (which requires logging into your Government Gateway account), the software handles the submission. You do not need to visit the HMRC portal at all for the quarterly updates.
Step-by-Step: How to Set Up Automated MTD ITSA Quarterly Updates
Step 1: Choose and Set Up MTD-Compatible Software
Sign up for Xero, FreeAgent, or QuickBooks. Connect your business bank account(s) and any payment platforms (Stripe, PayPal, GoCardless) to the software. This is the foundation. Without live bank feeds, automation does not work.
Set up your chart of accounts to match how your agency actually operates. Common categories for agencies include:
- Retainer income
- Project income
- Freelancer costs
- Software subscriptions (Adobe, Asana, Slack, etc.)
- Staff salaries and employer NI
- Office rent and utilities
- Travel and client entertainment
- Marketing and advertising spend
Do not overcomplicate this. You need enough categories to file accurate quarterly totals to HMRC, not a management accounting system. Keep it simple.
Step 2: Create Bank Rules to Automate Categorisation
This is where the real time saving happens. In Xero, for example, you can create bank rules that automatically categorise transactions based on the payee name, amount, or description.
Example: Every time a payment from "Stripe Payments UK" appears in your bank feed, the rule categorises it as "Retainer income." Every time "Adobe Systems" takes a direct debit, the rule categorises it as "Software subscriptions."
Spend an hour setting these up initially. It pays back in about two weeks. After that, 80-90% of your transactions will categorise themselves. You just review and approve them.