If you’re a sole trader, 2026 isn’t “far away” anymore — it’s here. Making Tax Digital for Income Tax Self Assessment (MTDITSA) is now phasing in for individuals with qualifying income over £50,000, and from April 2027 it applies to those over £30,000 (with plans to lower to £20,000 from 2028 based on 2026/27 income).
Under MTDITSA, you must:
- Keep digital records of all business income and expenses.
- Submit quarterly updates via compatible software.
- File an End of Period Statement (EOPS) and a Final Declaration by 31 January following the tax year.
We’ve been helping clients prepare for this for years. 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 Hammond & Co guides you through the process step by step — fully compliant with HMRC rules.
What MTDITSA Actually Requires (in Plain English)
From your mandatory start date, you’ll need to:
- Keep digital records of all business income and expenses.
- Submit quarterly updates for each self-employment or property income source via compatible software.
- File an EOPS to finalise figures and a Final Declaration to confirm your overall personal tax position.
Who’s in scope?
Sole traders and landlords with qualifying income above the thresholds. Limited companies are not in scope for Income Tax (they pay Corporation Tax), though directors may still file Self Assessment for dividends or other personal income.
Exemptions: HMRC may agree digital exemptions in specific circumstances (age, disability, location, or religious grounds). These must be applied for and approved by HMRC — approval is not guaranteed.
Why Staying Sole Trader Under MTDITSA Gets Harder
As a sole trader, MTDITSA means:
- More deadlines: four quarterly updates + EOPS + Final Declaration (six touchpoints instead of one).
- Mandatory software: spreadsheets or paper records no longer suffice.
- Greater admin rhythm: your books must be up to date quarterly — no more “do it in January.”
For many growing businesses, this turns “I’ll sort it later” into a continuous compliance treadmill. You can delegate the work, but if your profits are healthy and you want planning flexibility, going limited is often a better platform.
Why We’re Advising 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, not companies. Your company files annual accounts and Corporation Tax returns using digital software (as we already do for our clients).
- Clearer financial separation: the company is a separate legal entity. You become a director/shareholder, helping with planning, discipline, and credibility.
- Flexible remuneration: we can structure salary + dividends + company pensions to suit your goals and optimise tax efficiently. Directors may still file Self Assessment for dividends, which we handle.
- Better tax planning cadence: quarterly reviews focus on forward-looking planning, not just MTDITSA compliance.
- Professional image & growth: being “Ltd” can help with tenders, supplier terms, funding, and adding co-owners later.
Will You Automatically Pay Less Tax?
Not automatically — it depends on profit, income extraction, and dividend/pension strategy.
Many clients with profits in the £40k–£60k+ range see meaningful tax savings with a tailored director pay plan (salary, dividends, pensions) fully compliant with HMRC. We model this before you decide.
Our HMRC-Compliant Approach
Step by step:
- Eligibility & timing: we confirm MTDITSA scope, determine the best incorporation date, and model tax outcomes.
- Company formation & registrations: company setup, Corporation Tax registration, PAYE/VAT setup, statutory registers.
- Digital record-keeping: Xero + Dext + Hubdoc to satisfy company and personal record-keeping needs.
- Quarterly discipline: bookkeeping checks, management numbers, and tax set-asides — no surprises.
- Director remuneration plan: salary (usually aligned with NIC thresholds), dividends, and pensions.
- Personal returns: we handle Self Assessment if needed (e.g., dividends, property income).
- Exemptions advice: we guide you through HMRC’s digital exclusion process if relevant.
Reality Check on Exemptions
HMRC exemptions are strict: digital exclusion must be reasonably impractical (age, disability, location, religious grounds). Accountants alone cannot secure an exemption — HMRC decides on a case-by-case basis.
What About Mixed Trade and Property Income?
- Trade moved into a limited company is no longer MTDITSA scope.
- Personal property income may still be in scope if thresholds are exceeded.
- We model both sides to keep you compliant and optimised.
Typical Timeline for Incorporation
- Week 1–2: Decide & set the date; model sole trader vs limited.
- Week 2: Form company, register for Corporation Tax, PAYE, VAT if needed.
- Week 3: Move essentials: bank account, contracts, invoices, stationery.
- Week 3–4: Digital setup & training (Xero, Dext, Hubdoc).
- Month 2+: Run new rhythm: quarterly reviews, tax forecasting, dividends/pensions, deadlines.
Real-Life Example
A Derbyshire trades business crossed £50,000 qualifying income in 2024/25. HMRC would have required MTDITSA from April 2026.
We incorporated early 2025/26, set a modest director salary, introduced quarterly planning, and set up pension contributions.
Result:
- No MTDITSA obligations for the trade.
- Personal Self Assessment simplified to salary/dividends.
- Net tax position improved; no quarterly scramble.
Property income was reviewed separately to ensure ongoing MTDITSA compliance.
When We’d Say “Stay Sole Trader (For Now)”
- Profits are modest.
- Affairs are simple.
- Short-term reasons to delay exist (e.g., using a one-off sole trader loss).
We’ll still manage MTDITSA compliance and plan a future switch date when it genuinely pays.
Your Next Step With Hammond & Co
- Not sure if you’re in scope? We’ll check qualifying income and timeline.
- Want the numbers? We’ll show a side-by-side tax comparison (sole trader vs limited), including salary/dividend/pension strategy.
- Ready to move? We handle incorporation, software, payroll, and director plan — compliantly and calmly.
📞 01246 563414
📧 admin@hammondbusiness.co.uk
🌐www.hammondbusiness.co.uk
Hammond & Co — Accounting that Empowers Reliable, Strategic Business Decisions.