Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory from April 2026 for sole traders and landlords with qualifying income over £50,000. From April 2027, that threshold drops to £30,000. If you run an agency and file a self assessment return, you will need MTD-compatible software that integrates with Xero for agency-specific reporting.

Xero is already the most common accounting platform among the agencies we work with. It handles the core bookkeeping well. But Xero alone will not satisfy MTD requirements. You need bridging software or a compatible add-on that submits quarterly updates to HMRC.

The question is not just what works with Xero. It is what works with Xero and gives you reporting that actually makes sense for an agency. Not a generic retail dashboard. Not a property portfolio view. Agency-specific metrics: utilisation, gross margin by client, retainer profitability, project burn rates, and revenue per head.

Here is what we recommend to agency founders preparing for MTD.

What MTD for ITSA Actually Requires

Before you pick software, understand what MTD demands. From April 2026, if your self-employed income exceeds £50,000, you must:

  • Keep digital records of all business income and expenses
  • Submit quarterly updates to HMRC (not a full return, just the summary figures)
  • File an end-of-period statement after the tax year
  • File a final declaration (replacing the current self assessment return)

Quarterly updates are the big change. You will send HMRC your income and expenses every three months, using MTD-compatible software. That software must connect to HMRC's API. Xero does this natively for VAT (MTD for VAT has been mandatory since 2019). For Income Tax, you need either Xero's own MTD module or a third-party integration.

Xero has confirmed its MTD for ITSA functionality will be available in time for April 2026. But the standard Xero reports are not built for agency-specific metrics. You will likely want a separate reporting tool that pulls Xero data and presents it in a way that helps you run the business, not just comply with HMRC.

6 MTD-Compatible Software Integrations for Agency Reporting

These six tools all integrate with Xero, are MTD-compatible (or will be by April 2026), and give you reporting that matters for an agency.

1. Dext (formerly Receipt Bank)

Dext is the market leader for receipt capture and expense management. It integrates directly with Xero, pushing coded transactions into your ledger. For MTD purposes, Dext Prepare handles the digital record-keeping requirement. You photograph receipts, Dext extracts the data, and it lands in Xero already coded.

For agency founders, the value is in the control. No more lost receipts. No more guessing what that coffee meeting was for. Dext also handles multi-currency receipts, which matters if you have overseas contractors or clients.

Dext will be MTD-compatible for Income Tax by April 2026. It does not generate the quarterly updates itself, that happens in Xero, but it ensures your underlying records are digital and accurate.

Best for: Agencies with high volumes of expenses, travel costs, or subcontractor invoices.

2. Float

Float is a cash flow forecasting tool that integrates with Xero. It pulls your actuals from Xero and lets you build forward-looking projections. For agency founders, this is where you spot the cash crunch three months before it hits.

Float is not an MTD submission tool. But it is MTD-compatible in the sense that it uses the same digital data you will be submitting quarterly. The real value is this: once your quarterly MTD update goes in, Float updates your cash flow forecast automatically. You see exactly how the tax payments affect your working capital.

A typical agency scenario: you submit your Q1 update in July. HMRC expects a payment on account in January. Float shows you the gap between now and then, so you can adjust your retainer billing or delay a non-essential hire.

Best for: Growth-stage agencies where cash flow is the main constraint.

3. Spotlight Reporting

Spotlight Reporting is the most powerful agency-specific reporting tool that integrates with Xero. It pulls your trial balance and produces management accounts, dashboards, and board reports. The agency-specific templates include:

  • Revenue by client and service line
  • Gross margin by client
  • Utilisation rate (if you feed in timesheet data)
  • Project profitability
  • Revenue per head

Spotlight is MTD-compatible in that it works alongside Xero's MTD module. It does not submit to HMRC directly. But it takes the same data you submit quarterly and turns it into reports you can actually use to run the agency.

If you are a 12-person digital agency billing £800k per year, Spotlight gives you the monthly management accounts you need to present to your board or your bank. Without it, you are relying on Xero's standard P&L, which shows you what happened but not why.

Best for: Established agencies that need proper management reporting, not just compliance.

4. Fathom

Fathom is a competitor to Spotlight, with similar functionality. It integrates with Xero and produces dashboards, KPIs, and benchmarking reports. Fathom is slightly simpler to set up than Spotlight, which makes it a good entry point for agencies that have not used management reporting before.

Fathom's agency-specific features include revenue analysis by client, gross margin tracking, and trend reports. It also handles multi-entity reporting, which is useful if you have a holding company structure or multiple trading companies.

Like Spotlight, Fathom is MTD-compatible in that it uses the same digital data. It does not file returns, but it makes the data useful.

Best for: Agencies moving from basic bookkeeping to proper financial management.

5. Taxfiler

Taxfiler is a straightforward MTD-compatible software for submitting quarterly updates and end-of-period statements. It integrates with Xero, so you do not have to re-enter data. Taxfiler pulls the summary figures from Xero and sends them to HMRC.

Taxfiler does not give you agency-specific reporting. It is a compliance tool, not a management reporting tool. But it is reliable, inexpensive, and HMRC-approved for MTD.

If you are a sole trader web designer turning over £65k and you just want to meet the MTD requirement without adding complexity, Taxfiler is a solid choice. Pair it with Xero and Dext, and you have a complete MTD setup.

Best for: Sole traders and small agencies that want minimal fuss.

6. QuickFile

QuickFile is a UK-based accounting platform that integrates with Xero (you can use it as a read-only reporting layer). It is MTD-compatible for both VAT and Income Tax. QuickFile's reporting is more flexible than Xero's standard reports, though not as deep as Spotlight or Fathom.

For agency founders, QuickFile's main advantage is cost. It is free for the basic version, with paid tiers for advanced features. If you are a small agency on a tight budget, QuickFile gives you MTD compliance without a big software bill.

Best for: Budget-conscious agencies that need MTD compliance with basic reporting.

How to Choose the Right MTD Software Stack for Your Agency

Your choice depends on three factors: agency size, reporting needs, and budget.

For sole traders and micro-agencies (turnover under £100k)

Use Xero + Dext + Taxfiler. Xero handles the bookkeeping. Dext captures expenses digitally. Taxfiler submits the quarterly MTD updates. Total software cost: roughly £60-80 per month. You get compliance plus basic expense control.

For small agencies (turnover £100k-£500k)

Use Xero + Dext + Float. Float gives you cash flow forecasting, which becomes critical as you scale. You will need Xero's MTD module or Taxfiler for the actual submissions. Total cost: roughly £100-150 per month.

For established agencies (turnover £500k+)

Use Xero + Dext + Spotlight Reporting + Float. Spotlight gives you the management accounts and KPIs you need to run the business. Float keeps cash flow visible. Xero's MTD module handles submissions. Total cost: roughly £200-350 per month. This is the stack we recommend most often to agency founders preparing for MTD.

What About Xero's Own MTD Module?

Xero is developing its own MTD for ITSA functionality. It will be included in existing Xero subscriptions. You will be able to submit quarterly updates directly from Xero without a third-party tool.

That is fine for compliance. But Xero's reporting is not built for agencies. The standard P&L shows income and expenses. It does not show gross margin by client, utilisation, or project profitability. If you want those metrics, you still need a dedicated reporting tool like Spotlight or Fathom.

Think of it this way: Xero's MTD module gets you through the HMRC gate. Spotlight shows you where the agency is actually making money.

Practical Steps Before April 2026

If you are a sole trader or partnership with income over £50,000, you have until April 2026 to get ready. Here is what to do now:

  1. Check your qualifying income. If it is over £50,000, MTD applies from April 2026. If it is between £30,000 and £50,000, you have until April 2027.
  2. Make sure your bookkeeping is digital. If you are still using spreadsheets or paper receipts, switch to Xero and Dext now. Do not wait until March 2026.
  3. Choose your MTD submission method. Either use Xero's own module or a bridging tool like Taxfiler. Test it before the first quarterly deadline.
  4. Add a reporting tool if you want agency-specific insights. Spotlight or Fathom will pay for themselves in better decisions.
  5. Speak to your accountant. As ICAEW qualified accountants, we can review your current setup and tell you exactly what you need. If your agency structure is complex, multiple companies, overseas contractors, or a holding company, the MTD requirements may differ.

Common Mistakes Agency Founders Make with MTD Software

Three mistakes come up repeatedly.

Mistake 1: Assuming Xero alone is enough. Xero handles the records. It does not submit quarterly MTD updates for Income Tax unless you use its MTD module. Check your subscription level now.

Mistake 2: Picking software based on price alone. A free or cheap tool might meet MTD requirements but give you no useful reporting. You will spend more time reconciling data than analysing it. The cost of poor reporting is higher than the cost of Spotlight.

Mistake 3: Ignoring cash flow timing. Quarterly MTD updates mean more frequent tax payments. If you are on the payments on account system, you will still pay twice a year. But the quarterly updates give HMRC earlier visibility of your income. If your income fluctuates, you may need to adjust your payment profile. Float or similar cash flow tools help you see this coming.

Final Thought

MTD for ITSA is not optional. It is coming, and it will change how you interact with HMRC. But it does not have to be a burden. The right software stack, Xero plus a few carefully chosen integrations, turns the compliance requirement into a management advantage.

If your agency is growing, the reporting tools you add for MTD will become the dashboard you use to run the business. That is the upside no one talks about.

If you want to talk through your specific setup, get in touch. We work with agency founders every day on MTD preparation, and we know which software combinations actually work in practice.