By Accounting Matters Ltd.
If you’re a sole trader, 2026 isn’t “far away” anymore. Making Tax Digital for Income Tax Self Assessment (MTDITSA) starts phasing in from 6 April 2026 for individuals with qualifying income over £50,000, then from 6 April 2027 for those over £30,000—with plans announced to lower to £20,000 from April 2028 (based on the 2026/27 qualifying income).
nder MTDITSA, you must keep digital records and submit quarterly updates, followed by an End of Period Statement (EOPS) and a Final Declaration—using compatible software.
We’ve been preparing clients for this for years. And here’s our honest view:
If you’re growing, value your time, and want clarity around tax, incorporating in 2025/early 2026 is often the smarter, calmer, and more strategic move.
Below we explain what MTDITSA really means, how it changes life as a sole trader, when going limited helps, and how we’ll get you there step-by-step—fully within HMRC guidelines.
What MTDITSA Actually Requires (in plain English)
From your mandatory date (based on your qualifying income), you’ll be required to:
- Keep digital records of all business income and expenses.
- Send quarterly updates for each self-employment and/or property income source via compatible software.
- After the year-end, submit an EOPS to finalise that business’s figures, and a Final Declaration to confirm your overall personal tax position by 31 January following the tax year.
HMRC will identify those within scope using submitted returns and write to affected taxpayers ahead of their start date.
Who’s in scope? Individuals (sole traders and landlords) with qualifying income above the thresholds above. Limited companies are not within MTDITSA for Income Tax because the company pays Corporation Tax—but directors may still file Self Assessment for dividends or other income.
Exemptions: HMRC can agree to an exemption for digital exclusion (for example: it’s not reasonably practicable due to age, disability, or location; or religious grounds). HMRC has set out who may be automatically exempt (e.g., certain trustees, personal representatives). Applications are now open and must be approved by HMRC—this is case-by-case and not guaranteed.
Why Staying Sole Trader Under MTDITSA Gets Harder
As a sole trader under MTDITSA you’ll have:
- More deadlines: four quarterly updates + EOPS + Final Declaration (six touchpoints instead of one tax return).
- Mandatory software (no spreadsheets/paper).
- Greater admin rhythm: books must be up to date every quarter—no more “do it in January.”
For many growing sole traders, this turns “I’ll sort it later” into a rolling compliance treadmill. You can, of course, delegate to us. But if your profits are healthy and you want stronger planning options, going limited can be the better platform.
Why We’re Advising Many Sole Traders to Incorporate
Moving to a limited company doesn’t just change tax—it changes structure:
- No MTDITSA for the company
MTDITSA targets individuals with qualifying income. A limited company files annual accounts and a Corporation Tax return instead, using digital software (as we already do for our clients).
- Clearer financial separation
Your company becomes a separate legal entity. You become a director/shareholder. That separation helps with discipline, planning and credibility.
- Flexible remuneration
We can structure a blend of salary + dividends (and company pension contributions) to suit your goals and keep your personal tax efficient—all compliant with HMRC rules. (Directors may still file Self Assessment for dividends; we handle that.)
- Better tax planning cadence
Our quarterly reviews now drive forward-looking tax planning, not just MTDITSA box-ticking. It’s a strategic rhythm, not a compliance scramble.
- Professional image & growth
“Ltd” can help with tenders, supplier terms and funding. It’s also easier to bring in co-owners later.
Will You Automatically Pay Less Tax If You Go Limited?
Not automatically—it depends on your profit level, how you extract income, and pension/dividend strategy. But once profits move into the £40k–£60k+ range, many clients see meaningful savings when we put a tailored director pay plan in place (within HMRC rules on salary, dividends and pensions). Your mileage varies; we model this for you before you decide.
What “Following HMRC Guidelines” Looks Like (Our Approach)
We design and deliver your transition by the book:
- Eligibility & timing
We confirm whether you’re in MTDITSA scope, and when—and whether early incorporation is sensible based on your qualifying income and growth plans.
- Company formation & registrations
We incorporate your company, register for Corporation Tax (and PAYE/VAT if needed), and ensure director/shareholder details and statutory registers are correct.
- Digital record-keeping
We onboard you to Xero + Dext + Hubdoc so your records are digital and complete (satisfying both company accounts and any personal record-keeping you still need).
- Quarterly discipline
We replace “quarterly panic” with quarterly planning: bookkeeping checks, management numbers, and tax set-asides—so there are no surprises.
- Director remuneration plan
We agree on a salary (usually aligned with NIC thresholds), dividend policy, and employer pension contributions (where appropriate) to manage Corporation Tax and Personal Tax efficiently and compliantly.
- Personal returns
If you still need Self Assessment (e.g., for dividends, property income), we file it, and ensure it reconciles to company records and your dividend vouchers.
- Exemptions advice (if relevant)
If you believe you are digitally excluded, we’ll help assess and, where appropriate, apply using HMRC’s process. (Approval is HMRC’s decision and not guaranteed.)
A Quick Reality Check on Exemptions
We’re often asked, “Can I just get an exemption?” HMRC’s bar is specific: it must be not reasonably practicable for you to use digital tools (age, disability, location) or your religious beliefs are incompatible with using computers. Having an accountant alone does not automatically qualify you for exemption; HMRC looks at your circumstances. If you think this applies, we’ll guide you—but we’ll never promise what HMRC must decide.
What Changes If You Have Both Trade and Property?
- Going limited moves your trade out of MTDITSA scope (because a company, not an individual, is trading).
- If you also have personal property income, MTDITSA may still apply to that income stream in your name when your qualifying income crosses the thresholds. We’ll model both sides so you’re compliant and optimised.
Our Step-By-Step Incorporation Plan (Typical Timeline)
Week 1–2 — Decide & set the date
We run the numbers (sole trader vs limited), confirm your MTDITSA position and pick the most efficient incorporation date (usually aligned to month or tax year boundaries).
Week 2 — Form the company
Company name, shares, officers, registers. Register for Corporation Tax; set up PAYE (director salary). VAT review if you’re close to the threshold.
Week 3 — Move the essentials
Open the company bank account; transfer recurring contracts where needed; update invoices, stationery and web details.
Week 3–4 — Digital setup & training
Xero + Dext + Hubdoc installed and connected; bank feeds live; invoice templates branded; spend-capture workflow explained.
Month 2+ — Run the new rhythm
Quarterly reviews (not just MTDITSA-style updates), tax forecasting, dividends & pension planning, director loan monitoring, deadline tracking.
A True-to-Life Example
One of our clients, a growing Derbyshire trades business, crossed £50,000 qualifying income in 2024/25. HMRC would write confirming MTDITSA from April 2026. We incorporated in early 2025/26, set a modest director salary, introduced quarterly planning, and created a pension contribution plan. Result:
- No MTDITSA obligations for the trade (the company now trades).
- Personal Self Assessment simplified to salary/dividends.
- Net tax position improved (versus remaining a sole trader) and no quarterly scramble.
We then reviewed their property income separately to ensure future MTDITSA compliance if thresholds were crossed.
When We’d Say “Stay Sole Trader (For Now)”
We’ll never push you to incorporate if it isn’t right. If profits are modest, your affairs are simple, or there’s a short-term reason to delay (for example, a large one-off sole-trader loss to use), we’ll manage MTDITSA for you, set you up on compliant software, and plan a future switch date when it genuinely pays.
Your Next Step With Accounting Matters
- Not sure if you’re in scope? We’ll check your qualifying income and timeline.
- Want the numbers? We’ll show you a like-for-like tax comparison (sole trader vs limited), incorporating salary/dividends/pension strategy.
- Ready to move? We’ll handle the incorporation, software, payroll, and director plan—compliantly and calmly.
📞 01773 747990
📧 welcome@accountingmatters.co.uk
🌐 www.accountingmatters.co.uk
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