Introduction – A New Era for Sole Traders
For years, sole traders have operated with a relatively simple compliance routine: one annual Self Assessment return, basic bookkeeping, and a single January deadline.
But from April 2026, that simplicity changes.
The Government’s Making Tax Digital for Income Tax Self Assessment (MTDITSA) initiative will transform how more than four million sole traders and landlords manage their tax affairs. Instead of a single return each year, business owners will be required to submit quarterly updates, an End of Period Statement, and a Final Declaration—six submissions in total.
For many, this shift isn’t just extra admin; it’s a fundamental change to how they run their business. And for some, it may be the prompt to reconsider whether remaining a sole trader still makes sense—or whether incorporation could offer more structure, efficiency, and peace of mind.
At Hammond & Co, we’re here to help you understand the change and navigate your options.
What Exactly Is MTDITSA?
MTDITSA is part of HMRC’s wider effort to modernise the UK tax system by making it digital, more accurate, and more frequent.
Who it applies to:
• Sole traders and landlords with annual income above £30,000.
When it starts:
• April 2026.
What’s required:
- Quarterly digital submissions of income and expenses
- An End of Period Statement (EOPS) to finalise the year
- A Final Declaration covering all personal income
HMRC’s objective is to reduce errors—but for small business owners, the result is more deadlines and more administrative pressure.
How MTDITSA Will Impact Sole Traders
Currently, most sole traders:
- Keep simple records (often spreadsheets)
- Submit one Self Assessment per year
- Pay tax once or twice annually
Under MTDITSA, you will need to:
- Use HMRC-approved bookkeeping software
- Submit quarterly reports
- Maintain up-to-date records throughout the year
- File an EOPS and Final Declaration
This isn’t a one-off adjustment—it’s an ongoing obligation. And with more deadlines comes the increased risk of penalties for missed or inaccurate submissions.
The Hidden Costs of MTDITSA for Sole Traders
At first glance, MTDITSA may look like “a bit more admin,” but the reality is more impactful:
1. More Time Required
Quarterly reporting means bookkeeping must stay current. No more year-end catch-up.
2. Software Costs
Tools like Xero, QuickBooks, and FreeAgent come with monthly subscription fees—an extra expense for those who previously used spreadsheets.
3. Higher Penalty Risk
Six submissions each year mean more opportunities to miss deadlines or make mistakes.
4. Business Distraction
Time spent on admin is time not spent on delivering services, finding new clients, or growing the business.
5. Increased Professional Fees
Many sole traders may eventually need an accountant just to keep compliant—often after penalties have already been issued.
When you add this up, the “simple” sole trader model becomes much less simple.
Why Limited Companies Are Better Positioned
Here’s the interesting part: limited companies are already operating in a digital compliance environment.
They routinely:
- File accounts with Companies House
- Submit Corporation Tax returns
- Use cloud accounting software
- Hold regular financial reviews with their accountants
MTDITSA essentially brings sole traders up to the compliance level that limited companies already operate within—making incorporation far less daunting and, in many cases, more appealing.
Tax Efficiency – A Major Advantage
MTDITSA isn’t the only factor prompting sole traders to review their structure. Tax efficiency plays a significant role.
As a sole trader, your profits are taxed as income:
- 20% basic rate
- 40% higher rate
- 45% additional rate
- Plus Class 2 and Class 4 National Insurance.
As a limited company director, you can:
- Take a tax-efficient salary
- Draw dividends (typically taxed at lower rates)
- Leave profits in the company at 19–25% Corporation Tax
- Make employer pension contributions, reducing Corporation Tax
- Benefit from increased tax planning opportunities
The flexibility is substantial—and once MTDITSA adds more admin anyway, the case for staying as a sole trader weakens.
Case Study: Sarah the Online Retailer
Sarah earns £45,000 a year selling handmade home décor as a sole trader.
Today:
- One annual tax return
- £8,000 in income tax and NI
- Spreadsheet bookkeeping
From April 2026:
- Must use paid software (~£360/year)
- Ongoing weekly bookkeeping
- Six submissions per year with penalty risk
If she incorporates:
- Takes a £12,570 salary plus dividends
- Potentially saves £1,000–£2,000 in tax
- The company pays for software
- A structured compliance process overseen by her accountant
For Sarah, incorporation isn’t just tax-efficient—it reduces stress and risk under MTDITSA.
How Hammond & Co Supports Clients Through MTDITSA
At Hammond & Co, we’ve been preparing for these changes well ahead of time. Our goal is to make digital compliance smooth, clear, and stress-free.
We provide:
✔ Full digital setup
We get you running on Xero, Dext, and other integrated tools tailored to your business.
✔ Quarterly reviews that add value
We don’t just file to HMRC—we help you plan for tax, cash flow, and growth.
✔ Friendly, practical software training
We help you understand your tools without confusion or jargon.
✔ Deadline protection
With us managing submissions, you avoid penalties and stay compliant.
✔ Strategic advice—MTDITSA or incorporation
We help you assess whether staying as a sole trader or going limited is best for your circumstances.
Our clients often tell us the peace of mind alone is worth the switch.
Why Choose Hammond & Co for Incorporation
If you’re considering going limited, the setup needs to be done properly. We handle:
- Companies House registration
- HMRC notifications
- Transitioning bank accounts and assets
- Director payroll setup
- Salary/dividend planning
- Smooth migration of bookkeeping systems
We make incorporation clear, structured, and worry-free—supporting you every step of the way.
Conclusion – Don’t Let MTDITSA Catch You Out
MTDITSA is coming, and it will change how sole traders operate. Some will adapt with new digital tools. Others will find that incorporating provides better tax efficiency, clearer structure, and fewer headaches.
Whatever route you choose, Hammond & Co is here to guide you.
👉 Ready to explore MTDITSA or discuss whether incorporation makes sense for you?
Book a free consultation with Hammond & Co today.
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