Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) has arrived, and for many sole traders it is arriving sooner than they think. From April 2026, self-employed individuals and landlords with qualifying income above £50,000 must comply. Those earning above £30,000 follow in April 2027. Quarterly digital record-keeping and submissions will replace the familiar annual self-assessment return, a significant shift for sole traders and their accountants alike.
Alongside this change some sole traders are receiving a new piece of advice from their accountants: consider incorporating as a limited company. On the surface, it might sound like sound tax planning. But it is worth asking whether incorporation is genuinely the right move, or whether it is simply a way of sidestepping the administrative challenges of MTD compliance.
Why Some Accountants Are Suggesting Incorporation
Limited companies fall outside the scope of MTD for ITSA. They are subject to corporation tax, not income tax self-assessment, so the quarterly reporting requirements do not apply in the same way. For accountants who have not yet adopted the right software or built the workflows to handle MTD submissions efficiently, steering clients towards incorporation removes the problem, at least temporarily.
This is not necessarily the wrong advice, but it may not be the right advice for every client. Incorporation brings its own issues: annual accounts filed at Companies House, a director’s self-assessment return, payroll considerations, and stricter compliance requirements. For a sole trader with a straightforward business, the overhead can outweigh any tax advantage.
Alternatives Worth Considering
Before making a structural decision about your business, it is worth exploring what compliance looks like under MTD for ITSA, because for many sole traders it is far more manageable than the headlines suggest.
The core requirement is to keep digital records of income and expenses and submit quarterly updates to HMRC through compatible software. Platforms such as QuickBooks, Xero, and FreeAgent already support MTD for ITSA, and many are designed to make the process as straightforward as possible. If your records are reasonably well-organised, the quarterly updates are largely a matter of categorising transactions that the software will often pre-populate automatically through bank feeds.
The alternative to incorporation, then, is preparation, choosing the right software, understanding what is required, and building a simple routine around it. Many sole traders who have made this shift find it gives them a clearer picture of their finances throughout the year, rather than scrambling to reconstruct twelve months of records in January.
How Hydref Accounting Can Help
This is where Hydref Accounting comes in, and not just for sole traders.
If you are a sole trader wondering whether you genuinely need to incorporate, or whether you simply need better tools and a clearer understanding of what MTD requires, Hydref can help you work through that decision honestly. The focus is always on what is right for your business, not on finding the path of least resistance.
Equally, if you are an accountant who wants to get to grips with MTD-compatible software before the deadlines arrive, whether that means QuickBooks, Xero, or FreeAgent, Hydref offers practical training and support. Getting comfortable with the software now means you can support your own clients with confidence, rather than advising structural changes they may not need.
MTD for ITSA is a process change, not a crisis. With the right preparation and the right support, sole traders can comply without restructuring their entire business, and accountants can serve their clients effectively without taking the burden of learning about software as well as tax changes.
To find out more about MTD preparation, software training, or whether your current structure still makes sense, get in touch with Hydref Accounting today. Get in touch on 03333 449270 or book directly through my Calendly link to find out what Hydref can offer your business or practice.
