Making Tax Digital for Income Tax (MTD ITSA) is a government initiative requiring sole traders and landlords to keep digital records and submit quarterly updates to HMRC using compatible software, rather than filing a single annual Self Assessment tax return.

For UK agency founders, MTD ITSA fundamentally changes how you report your business income to HMRC. If your agency is structured as a sole trader or partnership (not a limited company), and your gross income from self-employment and property exceeds £50,000 per year, you must comply from April 2026. If your income is between £30,000 and £50,000, compliance starts from April 2027. Those with income below £30,000 can voluntarily opt in, but are not required to.

Under MTD ITSA, you must use HMRC-recognised software to record all business income and expenses digitally. You then submit quarterly summaries of your income and expenses to HMRC within one month of each quarter end (typically 5 August, 5 November, 5 February, and 5 May). At the end of the year, you submit a final declaration to confirm your figures, and any tax owed is calculated based on your total annual profit.

Key practical points for agency founders:

  • Software costs: You will need to budget for MTD-compatible accounting software, such as Xero, FreeAgent, or QuickBooks. Many have monthly subscription fees starting around £10-£30 per month.
  • No more spreadsheets: Simple Excel or paper records are no longer acceptable for MTD ITSA compliance. You must use software that connects directly to HMRC's API.
  • Quarterly deadlines: You must submit four updates per year, plus a final declaration. Missing these deadlines can result in late filing penalties.
  • Corporation tax exemption: If your agency is a limited company, MTD ITSA does not apply to you yet. However, MTD for Corporation Tax is expected from 2026, so you should prepare your digital record-keeping now.
  • VAT overlap: If your agency is already registered for VAT and using MTD for VAT, you can use the same software for both, simplifying your accounting.

When this matters for agency founders: If you operate as a sole trader or partnership with gross income over £50,000, you must start preparing for MTD ITSA now. Choose compatible software, set up quarterly reminders, and consider working with an accountant familiar with digital reporting to avoid penalties and stay compliant from April 2026.