Should you incorporate? With MTD for Corporation Tax gone, the time is now!

The Government’s announcement that Making Tax Digital (MTD) for Corporation Tax (CT) was no longer going to be implemented was met with great disinterest.

Many seemed unfazed by the news, given that a concrete timeline for its implementation had not been fully realised.

However, sole traders could be missing out on a perfect opportunity to avoid MTD for Income Tax (IT) if they incorporate now.

Why is now the right time to incorporate?

While it might have seemed like MTD was going to be something that everyone had to deal with, some successful sole traders might be able to avoid it.

As of April 2026, sole traders earning more than £50,000 a year will need to register for MTD for IT.

This will then necessitate that they submit quarterly digital tax filings.

The need to use specialist software has been a cause of concern for many who might not feel like they need to upgrade their processes to meet an arbitrary deadline.

For sole traders earning between £50,000 and £90,000 a year, incorporation will dodge the need to sign up for MTD in the next year.

This is because the profitability of a limited company is measured in a different way to that of a sole trader, and thus the MTD for IT obligation will no longer be enforced.

Similarly, the threshold where a business needs to handle VAT is currently £90,000 a year.

As MTD for VAT and MTD for IT both carry similar administrative burdens, sole traders that sit between these thresholds could avoid the transition entirely if they choose to incorporate.

What are the benefits of incorporating a business?

The biggest benefit of incorporating a business is the limited liability.

If you are a sole trader, you and your business are treated very similarly to each other.

However, a limited company is a distinct legal entity, and this carries with it enhanced protections against debt and legal obligations.

By incorporating your business, you can gain greater access to capital by issuing shares or attracting investors.

If your business has been profitable enough that you are in line for the first wave of MTD for IT, then it could be worth thinking of incorporation as the next step on your growth journey.

As a sole trader, you have had to handle all the work by yourself thus far.

While that is likely quite satisfying, hiring additional employees could help meet the needs of a wider pool of clients and help turn your business into a legacy that can stand the test of time.

Incorporating will allow you to onboard new employees so that you can start building a team of like-minded individuals.

Just be wary when adopting some of these strategies, as rushing towards growth can be detrimental to the long-term financial health of a business.

It is best to seek professional financial support and advice when deciding what the future of your business should look like.

Don’t get unnecessarily trapped by MTD for IT obligations. Speak to our team today to unlock your business’s financial future!

Stephanie Hurst