With Making Tax Digital (MTD) expanding in 2026 and 2027, many sole traders are starting to ask:

What Is Making Tax Digital (MTD)?

Making Tax Digital is a major shift in how self-employed people and landlords report income to HMRC.

Instead of one annual tax return, you’ll need to:

Keep digital records
Submit quarterly updates
File a final end-of-year statement
📅 What’s Changing in 2026/27?
From April 2026:
Applies to sole traders & landlords earning over £50,000
Requires:
4 quarterly submissions
1 final annual return
From April 2027:
Threshold drops to £30,000

👉 This means many more people will be affected.

💡 In simple terms:
Tax goes from “once a year” → to 5 submissions per year.

Who Is Affected?

You’ll be included in MTD if:

You’re a sole trader or landlord
Your income exceeds:
£50,000 (from April 2026)
£30,000 (from April 2027)
❗ Important:

This is based on income, not profit

So even if your actual earnings are lower after expenses, you may still be required to comply.

Why Limited Companies Are Currently Exempt

As of 2026:

👉 Limited companies are NOT included in MTD for income tax

This means:

No quarterly income tax updates (for now)
Continue filing:
Annual accounts
Corporation tax return
💡 Why this matters:

For some business owners, switching to a limited company could mean:

Less frequent reporting
More control over finances
Potential tax savings

⚠️ Important:
This may change in the future — but right now, it’s a planning opportunity.

Sole Trader vs Limited Company: Tax Comparison (Simple Example)

Let’s look at a simplified scenario:

Example Income: £50,000 profit
👤 Sole Trader:
Income tax:
20% + some 40% exposure
National Insurance:
Class 2 + Class 4
Total tax: higher overall burden
🏢 Limited Company:
Corporation tax:
From 19% (on profits up to £50k)
Then:
Salary + dividends strategy
💡 Result:

With proper structuring, a limited company can often result in:

Lower total tax
More control over when tax is paid

⚠️ But:
It’s not automatic — how you extract money matters.

pros and cons

Pros of Switching to a Limited Company
✔️ 1. Tax Efficiency
Corporation tax rates often lower than personal tax
Dividends taxed lower than salary
More flexibility to plan income
✔️ 2. Limited Liability
Your business becomes a separate legal entity
Personal assets are usually protected
✔️ 3. Credibility & Growth
More professional image
Easier to:
Work with larger clients
Attract investors
Sell the business later
⚠️ Cons of Switching
❌ 1. More Admin
Annual accounts
Corporation tax returns
Payroll responsibilities
❌ 2. Higher Accountancy Costs
More complex structure
Typically higher fees than sole trader setup
❌ 3. Less Simplicity
Money in the business ≠ your personal money
Requires more planning to withdraw funds efficiently

.

So… Should You Go Limited in 2026?

It often makes sense if:
You’re earning £40,000–£50,000+
You don’t need all profits immediately
You want to reduce tax long-term
You’ll be affected by MTD
You’re planning to grow
It may NOT make sense if:
Your income is lower
You value simplicity over optimisation
You regularly withdraw all profits

.

Need advice?

Making Tax Digital is changing how sole traders operate, and for many, it’s the trigger to rethink their business structure.

Switching to a limited company can:

Reduce tax
Improve flexibility
Simplify (or complicate) your admin, depending on your situation

The key is making the decision based on your specific circumstances, not generic advice.

📞 Thinking of Switching?

👉 Get a tailored comparison before making the move.

A quick review can show you:

If you’ll actually save tax
How much you could save
Whether switching makes sense for you right now