Making Tax Digital for Income Tax Self Assessment (MTD ITSA) arrives in April 2026. If your agency generates more than £50,000 in self-employed or partnership income, you will be required to file quarterly updates through MTD-compatible software rather than a single annual return.
This is not a minor tweak to the filing process. It is a fundamental change in how you report income and expenses to HMRC. For agency founders running limited companies, the impact is indirect but still real. For sole traders and partnerships, it is immediate and mandatory.
Here is what MTD ITSA means for your agency, when it applies to you, and what you need to do before the first deadline.
What Is MTD ITSA?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It is the second phase of HMRC’s long-term plan to digitise the tax system. The first phase, MTD for VAT, has been mandatory since 2019. MTD ITSA applies the same principle to income tax.
Instead of filing one self assessment return after the tax year ends, you will submit four quarterly updates to HMRC during the year. Each update summarises your income and expenses for that quarter. After the year ends, you submit a final declaration to confirm the figures and make any adjustments.
HMRC’s stated aim is to reduce the £8 billion annual tax gap caused by errors and late filing. Their data shows that digital record-keeping reduces mistakes. Whether you agree with the policy or not, it is happening.
When Does MTD ITSA Apply to Agency Founders?
The rollout is phased by income level:
- April 2026: Mandatory for sole traders and partnerships with total self-employed or partnership income above £50,000 per year.
- April 2027: Extended to those with income above £30,000 per year.
- Beyond 2027: HMRC has not yet confirmed a date for those below £30,000, but it is expected within the next five years.
Income here means gross income from self-employment or partnership, not profit. If your agency turns over £60,000 but your profit after expenses is £25,000, you still fall into the first wave.
For agency founders who operate through a limited company, you are not directly caught by MTD ITSA unless you also have self-employed income outside the company. However, your company is already subject to MTD for VAT if your turnover exceeds £90,000. And if you are a director drawing salary and dividends, your personal tax position is not affected by MTD ITSA at this stage. Corporation Tax MTD is coming, but that is a separate change expected around 2027.
What Changes for Agency Founders Under MTD ITSA?
Four specific changes matter to you.
1. Quarterly Filing Instead of Annual
Currently, you file one self assessment return by 31 January each year. Under MTD ITSA, you will file four quarterly updates plus a final declaration. The quarterly deadlines are:
- Period 1 (6 April to 5 July): file by 5 August
- Period 2 (6 July to 5 October): file by 5 November
- Period 3 (6 October to 5 January): file by 5 February
- Period 4 (6 January to 5 April): file by 5 May
The final declaration replaces the current self assessment return. It is due by 31 January following the end of the tax year, exactly as now.
2. Digital Record-Keeping Is Mandatory
You must maintain digital records of all income and expenses. Spreadsheets are acceptable only if they integrate with MTD-compatible software through a bridging tool. Manual records on paper or in a basic spreadsheet without bridging software will not comply.
This means your agency needs accounting software that is MTD ITSA compliant. Our agency-specialist team works with Xero, QuickBooks, FreeAgent, and Sage, all of which are MTD-ready. If you are using a spreadsheet-only system, you need to upgrade before April 2026.
3. Quarterly Figures Are Not Final
A common concern we hear from agency founders is: "What if my quarterly figures are wrong?"
The quarterly updates are cumulative estimates. They do not need to be perfect. You can adjust them in the final declaration. The key requirement is that you submit something reasonable within 30 days of each quarter end. HMRC expects you to use the best information available at the time.
If you realise in December that your July estimate was wrong, you correct it in the final declaration. There are no penalties for adjusting quarterly figures, provided you are not deliberately misreporting.
4. No More Paper Returns
If you currently file a paper self assessment return, that option disappears once MTD ITSA applies to you. Everything must be filed digitally through MTD-compatible software.
What MTD ITSA Means for Different Agency Structures
The impact varies depending on how your agency is set up.
Sole Trader Agency Founders
This is the group most directly affected. If you run your agency as a sole trader and your gross income exceeds £50,000, you must comply from April 2026. If your income is between £30,000 and £50,000, you have until April 2027.
For a sole trader web designer turning over £65,000 per year, MTD ITSA means quarterly bookkeeping becomes mandatory. You cannot leave it until January. You need a system that captures income and expenses in real time.
Partnerships
Partnerships are treated similarly to sole traders. Each partner’s share of partnership income counts toward their individual threshold. If you are in a two-person agency partnership and each partner’s share is £40,000, you both fall into the 2027 wave.
The partnership itself must file quarterly updates for the partnership’s income and expenses. Each partner then reports their share on their personal final declaration.
Limited Company Agency Founders
If your agency is a limited company, MTD ITSA does not apply to your director’s salary or dividends. You are not required to file quarterly updates for your personal tax affairs.
However, if you have side income from self-employment (consulting, freelance work, speaking fees) that exceeds the threshold, that income is subject to MTD ITSA. Many agency founders have side projects. If you do, check your total self-employed income across all sources.
Your company itself is already subject to MTD for VAT if it is VAT-registered. If you are not VAT-registered but your turnover exceeds £90,000, you must register and comply with MTD for VAT. That is a separate requirement.