Making Tax Digital and incorporation are now linked in the minds of many self-employed people and landlords. MTD for Income Tax changes how qualifying businesses keep records and report income to HMRC, while incorporation raises a separate question: should you become a limited company to delay or avoid those rules? In this episode, we explain the MTD rollout, what quarterly updates mean, why software matters, and why becoming a company should be a strategic business decision, not just a reaction to tax reporting changes.

About this episode

Tax is an ever-evolving landscape, and Making Tax Digital is one of the biggest changes facing self-employed people and landlords. We look at what MTD is, who needs to comply, how the timetable works, what digital record keeping means, and why quarterly updates change the way many people manage tax admin during the year. We also look at incorporation. For some people, MTD may trigger the question of whether to become a limited company. That question matters, but it needs proper thought. A company may delay MTD for Income Tax, but it also brings different responsibilities, costs and tax rules.

What changed from April 2026?

Making Tax Digital for Income Tax started to affect the first mandatory group from 6 April 2026. This applies to sole traders and landlords whose qualifying income from self-employment and property is over £50,000. The rollout then widens in later years. From 6 April 2027, the rules extend to those with qualifying income over £30,000. From 6 April 2028, they extend to those with qualifying income over £20,000. For those within the rules, MTD means keeping digital records, using MTD-compatible software, sending quarterly updates to HMRC and submitting the end-of-year tax return through software. These rules affect how information is reported. They do not change how tax itself is calculated, and they do not change the usual Self Assessment payment dates. However, they do create more regular reporting points during the year, so preparation matters.

The MTD rollout timeline

The episode explains that MTD was originally due earlier, but the timetable was revised. The current phased rollout gives people more time to prepare, but it also means the deadline is no longer theoretical.

• 6 April 2026:sole traders and landlords with qualifying income over £50,000 must use MTD for Income Tax.
• 6 April 2027:sole traders and landlords with qualifying income over £30,000 are brought into MTD for Income Tax.
• 6 April 2028:sole traders and landlords with qualifying income over £20,000 are expected to come into MTD for Income Tax.

The key point is that the threshold is based on qualifying income from self-employment and property, not simply profit. That distinction is important when checking whether the rules apply.

How MTD changes tax reporting

Under MTD for Income Tax, the annual routine changes. Instead of relying on one annual tax return process and records gathered at the end of the year, you need to keep digital records during the year and send quarterly updates to HMRC using compatible software. Those quarterly updates are not the same as calculating the final tax bill. They report totals for income and expenses. After the fourth quarterly update, there is still an end-of-year process to check the information, make adjustments and submit the tax return through software. For more detail on this part of the process, our episode on Making Tax Digital Quarterly Updates: What to Send and When is the natural next step.

Why MTD-compatible software matters

Paper records and disconnected manual systems will not be enough for MTD for Income Tax. You need software that can keep digital records and send information to HMRC in the required way. That may be full cloud accounting software, bridging software or another MTD-compatible tool, depending on your circumstances. Good software can do more than meet a compliance requirement. It can help you connect bank feeds, capture income and expenses more regularly, understand tax liabilities sooner and stay closer to your numbers during the year. For businesses still weighing up digital systems, our episode on What Is Cloud Accounting? Benefits, Setup and Making Tax Digital explains why cloud accounting can support better record keeping and decision-making.

Should you incorporate to avoid MTD?

One of the big questions in the episode is whether becoming a limited company can delay MTD for Income Tax. MTD for Income Tax is aimed at sole traders and landlords, not limited companies. So, on the surface, incorporation can look tempting. However, that does not mean becoming a company is automatically the right answer. We should never make a business structure decision purely for tax reasons. A limited company is a separate legal structure with different responsibilities, different tax rules and different admin. The right choice depends on your business, your profits, your risk, your personal income needs and your long-term plans. For the broader structure decision, our episode on Sole Trader or Limited Company: Which Is Best for You? is the main hub page in this cluster.

Why incorporation is not a shortcut

Incorporating may delay your need to follow MTD for Income Tax, but it does not remove tax and compliance responsibilities. A limited company needs Companies House registration, company accounts, confirmation statements, Corporation Tax compliance and proper records. Many owner-managed companies also need payroll, director salary planning and dividend planning. The episode also explains that the old tax-saving case for incorporation is not as straightforward as it once was. Whether incorporation saves tax depends on current tax rates, profit levels, how much money you withdraw personally and how much stays inside the company. That is why a rough tipping point should not be treated as a rule. The numbers need to be checked using current tax rates and the practical costs of running a company.

Admin and cost considerations

MTD will increase admin for many self-employed people and landlords because it introduces digital record keeping and quarterly updates. However, digital accounting can also make record keeping more regular and less stressful. Connecting bank accounts, capturing receipts and reviewing income and expenses during the year can reduce the annual scramble before the tax return deadline. Limited companies have a different admin burden. They may need payroll, Corporation Tax filings, company accounts, confirmation statements, director records and more formal separation between personal and company money. Both routes need planning. The key is not to choose the route that looks easiest today, but the one that supports the business you are building.

Making the right decision for your business

There is no one-size-fits-all answer. Staying self-employed may be simpler, especially where the business is straightforward and the extra reporting can be handled with the right software and support. Incorporation may make sense where there are wider commercial reasons: risk, growth plans, credibility, retaining profits, tax planning, investment, or building a more formal business structure. The decision should be based on your current position and your next few years, not just the desire to delay MTD. Professional advice can help you compare the tax, admin, legal and practical impact before making the move.

Making Tax Digital preparation checklist

• Check whether your qualifying income from self-employment and property exceeds the relevant MTD threshold.
• Do not wait for an HMRC letter before checking your position.
• Review whether your current records are digital, complete and up to date.
• Choose MTD-compatible software before the deadline applies to you.
• Decide whether you need help from an accountant or bookkeeper.
• Understand the quarterly update deadlines.
• Build a routine for recording income and expenses during the year.
• Check whether incorporation makes commercial sense, not just whether it delays MTD.
• Compare sole trader and limited company costs, tax and admin before deciding.
• Re-check GOV.UK/HMRC guidance before publishing or acting on thresholds.

FAQs about Making Tax Digital and incorporation

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is a system for sole traders and landlords to keep digital records, send quarterly updates and submit their tax return using MTD-compatible software.

When does Making Tax Digital apply?

MTD for Income Tax started from 6 April 2026 for sole traders and landlords with qualifying income over £50,000. It widens to those over £30,000 from April 2027 and over £20,000 from April 2028.

Does Making Tax Digital change how much tax we pay?

No. MTD changes how information is recorded and reported. It does not change how tax is calculated or when Self Assessment tax is paid.

Can we incorporate to avoid Making Tax Digital?

Incorporating may delay MTD for Income Tax because the current rules are aimed at sole traders and landlords. However, becoming a limited company brings different tax, legal and admin responsibilities, so it should not be done only to avoid MTD.

Do limited companies have to use Making Tax Digital for Income Tax?

MTD for Income Tax applies to qualifying individuals with self-employment and property income. Limited companies have their own Corporation Tax and Companies House responsibilities, so the company route needs separate advice and current guidance checks.

Episode Timecodes

• 00:00 – Tax as an evolving landscape and the rise of Making Tax Digital
• 00:17 – MTD and incorporation introduced together
• 00:36 – What the episode covers: MTD, companies and incorporation
• 00:50 – MTD is now a confirmed reality
• 01:33 – MTD timetable and phased rollout
• 02:28 – Should sole traders incorporate because of MTD?
• 02:50 – What Making Tax Digital is trying to do
• 03:27 – Quarterly updates and digital records
• 04:13 – Choosing software and using Xero
• 04:32 – Who needs to comply with MTD
• 04:57 – Deadlines, penalties and HMRC letters
• 05:54 – What about limited companies?
• 06:33 – Should you incorporate to delay MTD?
• 06:57 – Tax savings and the reduced incorporation advantage
• 07:20 – Company responsibilities and admin
• 08:22 – Incorporation as a strategic business decision
• 08:40 – Admin and compliance under MTD
• 09:00 – Quarterly updates, software and regular routines
• 10:38 – Company costs, payroll and accounting support
• 11:17 – Bottom line on incorporation and MTD
• 11:56 – Final thoughts and support

Related episodes

• Making Tax Digital Quarterly Updates: What to Send and When
• Stop Waiting for HMRC: Prepare for Making Tax Digital Today
• Sole Trader or Limited Company: Which Is Best for You?

Key takeaway

Making Tax Digital is changing the rhythm of tax reporting for qualifying sole traders and landlords. Digital records, compatible software and quarterly updates mean preparation should start before the deadline reaches you. Incorporation may delay MTD for Income Tax, but it is not a shortcut. A limited company brings its own tax, admin and legal responsibilities. The best decision is the one that fits your business goals, not just the one that avoids a reporting change. Plan it, Do it, Profit.

“Incorporation should be a strategic business decision, not just a way to delay a tax reporting change.”

Further Support

The I Hate Numbers podcast helps business owners understand tax, Making Tax Digital, bookkeeping, cloud accounting, cash flow, profit and business structure in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers. If you need help preparing for MTD, choosing software, setting up Xero, reviewing your records or deciding whether incorporation makes sense, you can contact us for an initial chat. You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts. 📘 Book https://www.ihatenumbers.co.uk/i-hate-numbers-book/ 🎧 Podcast https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/ 🌐 Website https://www.ihatenumbers.co.uk

:: 00:00

One thing about the world of tax is that it's an ever evolving landscape. One major initiative that's been on the horizon for some time but is now coming closer and closer is Making Tax Digital. Now in this week's I Hate Numbers podcast, I'm going to be giving you two for the price of one. I'm going to be talking about

:: 00:17

Making Tax Digital. I'm going to abbreviate that to MTD, and I'm also going to be discussing the topic of incorporation. For some people, this could be a trigger point as to whether they become a company or not, and I'm going to explore that in this week's podcast. I'm also going to be talking about what exactly MTD is, who needs to comply,

:: 00:36

the situation with companies, should you incorporate and intersperse will throw a few numbers in to make it easier to assimilate. Let's crack on.

:: 00:50

Now, after years of whispers and delays, MTD is finally truly happening. It's no longer a distant possibility. It's a concrete reality with a confirmed launch date. Now, mark your calendars, because from April, 2026, if you happen to be a self-employed individual or a landlord earning more than 20,000 pounds annually, you'll need to get on board with MTD.

:: 01:14

It's not a, oh, I might join it - is, you have no choice. It's compulsory. Now, that's going to be a significant shift for a number of people there, and it's really crucial that we do what we can to get ready and prepare. How you report your income is about to change. The fundamental rules for tax calculations aren't changing.

:: 01:33

It's just how you inform our friends at HMRC. Now, MTD, by the way, was originally due to become mandatory from April 24. And the timetable for compulsory compliance was revised in December 22, and it's as follows. Now from April 26, the 6th if you ought to be precise, anyone with gross annual income of over 50,000 from self-employment and property letting has to be part of the scheme.

:: 01:57

From 6th of April, 2027, those figures dropped to 30,000 and up to 50,000 from self-employment and property lifting, and from sixth of April, 2028 if you have gross income of more than 20,000 and up to 30,000 of them, self-employment and property, letting you have to be enrolled into the scheme. Now, for those of you who are thinking all that applies to me from April 26, then you have the option of being part of the trial scheme going through the pilots, but more about that towards the end of the podcast.

:: 02:28

Now, that's going to raise the question of should you carry on as a sole trader? MTD does not apply to companies at the moment. Should you be a sole trader? Should you carry on or should you actually incorporate your business? Could becoming a limited company actually delay your need to comply with MTD? And it's an excellent question, and I'm going to be breaking that down in more detail through this podcast.

:: 02:50

Now what I will say, never make a decision just purely for tax reasons here. There's going to be some underlying sense commerciality behind it as well. So let's start off with what exactly MTD is now. MTD is making tax digital. Think of it as HMRC - its grand plan to bring tax into the 21st century. Now their objective, their goal is to move tax reporting to a digital basis, make it consistently, ultimately easier to manage, identify any errors more easily, and plug any gaps there will be in the tax coffers.

:: 03:27

Now the biggest change that people will have to get their head round is instead of filing one tax return a year, you'll be submitting updates on a quarterly basis. That's right, four times a year. Unfortunately, you won't be able to just use paper records. You'll have to use what's called MTD compatible software to record all your income and your expenses digitally.

:: 03:49

Effectively, the self-assessment return, if you file paper or online, is going to eventually disappear under MTD. To replace it, there'll be four quarterly updates followed by a final declaration at the end of the tax year. Now this is going to have a major shift about not only how you manage your taxes from day to day, but the record keeping and the update in process and procedure.

:: 04:13

Now, if it's running through your mind about, oh my gosh, how do I choose the right software? Don’t worry. Check out the notes. We've got some guidance on our website ihatenumbers.co.uk to help you navigate that. As a spoiler alert, by the way, we recommend people move to something like Xero, for which we are platinum partners.

:: 04:32

Cough. Cough. Let's move on now. Who needs to comply with MTD? Well, from April 26, let's be very clear, if you're a self-employed business owner, income of over 50,000 landlords, those with rental income and any individuals owning over 20,000 of these sources, you are going to fall into this category and you need, and that's compulsory to register for MTD and start submitting those quarterly updates.

:: 04:57

Now, as a word of caution, as likely most things in tax, if you miss a deadline, it's likely to trigger a penalty inclusion. So staying on top of this is absolutely key. HMRC may allow some light touch, but the movement of them in recent times has been, there's a penalty regime there, a penalty scoring system.

:: 05:16

You're going to be part of that. Now, HMRC will be contacting you if you're falling under these rules. We are notifying our own clients, by the way, internally. But either way, be aware whether it's going to apply to you. And you don't panic when it arrives. Don't ignore those letters. It doesn't mean, you are in trouble.

:: 05:35

HMRC, in terms of writing letters doesn't tend to be very client friendly here. They're very efficient there, so it's quite easy to get into a panic, but they're trying to tell you it is time to get yourself prepared. Now, if you've got access to your accountant, talk to them about it. If you don't have anyone helping you, by all means drop us a line at I Hate Numbers.

:: 05:54

Obviously we don't hate numbers, by the way, but we know many of our clients do. Remember, you're not alone in this here, so don't panic and don't stress. And what about companies? Now, if you are currently running a limited company, here's the good news for now, at least. The government has not yet confirmed when MTD will apply to corporation tax.

:: 06:13

So currently limited companies are expected and required to follow the MT2 rules for their own business tax. Now the question that comes about naturally is, will becoming a company actually help you avoid or at least delay the need to comply with the MTD? So the question is, should you incorporate to avoid MTD?

:: 06:33

Now, I'm hearing this question a lot from people. I'm seeing it online and on the surface it can seem very tempting. Companies don't yet need to follow the rules. They still find their incorporated tax returns annually, not quarterly. So yes, incorporating could buy you some time, and this is a but and it's a big, but. You've got to ask yourself, does it actually make sense for you in the long term for your specific business?

:: 06:57

Now, historically, becoming a company meant that you'd have significant tax savings. That's still true to some extent, but it's not as true as it once was. Certainly the tax benefits of incorporation have shrunk, and depending on how much profit your business earns and how much that profit you withdraw for yourself, you may find that the savings are quite marginal between sole trader and company.

:: 07:20

And as a sweet spot circa 20-25,000 pounds a year worth of profits is normally the tipping point to become a company. And more importantly, becoming a company does bring responsibilities and admin that if you are self-employed, you are not used to, you've got the requirements and register with Companies House and file the accounts.

:: 07:39

There a confirmation statement running a payroll system, which is advisable, submitting tax returns both personally and for the company. And then you'll need to pay corporation tax as well as potentially income tax as well. Now that might seem quite scary, but just bear in mind there are extra obligations and it also means that the discipline of running a company is going to be different to running your sole trader business.

:: 08:03

And there's normally an additional uplift in terms of fees that you paid your advisor. Now, if you miss a deadline with a limited company, you're going to be looking at fines and penalties just as you would with self-assessment. So incorporation in itself isn't a shortcut to avoid your tax responsibilities. It is, and it should always be a strategic business decision.

:: 08:22

And me, I always apply that philosophy of substance follows form. Think about your business now, think about your business over the next, say two or three years. Think about your objectives. Think about how you are operating, think about risk and everything else that goes with that, and then make the decision of the best way to structure it.

:: 08:40

Becoming a company is a strategic business decision, and it's based on the genuine needs and goals of your business, not just a way to delay a tax change. Do check out the resources on the I Hate Numbers website to find out more. Now, let's look at the admin and compliance side of things. Now, MTD will increase admin for self-employed people.

:: 09:00

You can't get around that. Quarterly updates means more regular deadlines, and yes, some additional software costs. Now my personal view would be subscribing to something like Xero, a software platform, which we are proficient in and expert in in terms of setting up for clients, means there's actually a spinoff.

:: 09:17

You get to know what's going on in your business. You become closer to your numbers. You get to know what your tax liabilities are as you go through. Yes, there is going to be additional time involved in doing this, but if you get into a routine, you're going to avoid that annual once a year, getting all your paperwork together and getting things updated.

:: 09:35

Limited companies do have admin just slightly differently. If you do register for payroll, for example, you're going to have a payroll scheme to operate, national insurance contributions for directors and employees, and if your turnover is a sufficient level, VAT and corporation tanks as well. So you've got to ask yourself,

:: 09:52

are you comfortable taking on those extra responsibilities or outsourcing that to an accountant if you don't have one already? Or do you prefer to deal with those quarterly returns of running a company? So it is a weigh up exercise. Now, what's the impact on costs? Now, if you are staying self-employed and you operate the MTD, you obviously need to subscribe in the

:: 10:15

MTD software. You need to keep digital records of your income and expenses. You need to submit those four updates a year, which means ongoing time and effort. There are ways to actually keep that process smooth and for those clients of ours that embrace digital accounting here, the actual ongoing, doing things on a regular basis, which is good discipline, means that actually the task is not as erroneous as it might feel.

:: 10:38

You can plug your bank accounts into your software. The record keeping can be light touch, and there are a number of tools out there that actually make that data capture, that record keeping, not as erroneous as you might think. Now if you've become a limited company, you've obviously got the cost of incorporation, the annual confirmation statement, running the payroll, additional fees, digital tools and accounting support.

:: 11:00

The tax rules are different, so it's no longer you anymore. You are creating a different legal beast. So the ways where you might, for example, pay for something personally and have mixed use of business and personal, those rules don't necessarily apply when you become a company. So what's the bottom line?

:: 11:17

Incorporating your business may indeed delay your MTD requirements for income tax, but there are additional responsibilities and admin burdens and potential costs. There's no such thing as a one-size-fits-all answer. There are many benefits I feel still for becoming a company. Doesn't suit every business, but for some it's ideal.

:: 11:36

Again, it depends on your personal circumstances as well. If your business is a side hustle, then going as a limited company makes sense. The key thing is make an informed decision or certainly tap into some advice. Be willing to invest in that advice to actually help you make that final decision. Our diary is always free.

:: 11:56

If you don't have access to that existing support, then give us a shout. Now, folks, I hope you found this podcast episode useful. If you have, let me know what you think. Share it with those who you feel would benefit from that. Subscribe. Check out the website for resources. Until next week, happy MTDing.