By Matt Storey, Partner
If you are a sole trader, you may have shrugged off the Government’s decision to shelve Making Tax Digital (MTD) for Corporation Tax (CT).
It likely would not have impacted you anyway, and the looming threat of MTD for Income Tax (IT) is more of a concern.
However, the removal of MTD for CT could provide profitable sole traders who earn between £50,000 and £90,000 a year with a valuable option for avoiding MTD hassle entirely.
We take a look at whether now is the time to incorporate your business.
How can incorporation help you dodge MTD?
If you’re happy running your books in a spreadsheet, the thought of upgrading to specialist software can feel like an unnecessary headache.
This has caused some reluctance for many sole traders to make the swap to MTD for IT, even as the deadline gets closer.
However, incorporation could cut out the hassle, as your finances will look very different once incorporated.
Profits in a limited company are calculated under a different set of rules compared to those of a sole trader.
Once you incorporate, you no longer need to worry about the MTD for IT thresholds.
This may come as a relief to those who earn above £50,000 a year and thus would be staring down the MTD for IT deadline of April 2026.
You might be aware of the need to handle MTD for VAT, and this could cause some hesitancy around incorporating.
However, the VAT threshold is currently £90,000 a year, so if you earn below that, then you do not need to worry.
This provides a vital opportunity for sole traders who earn within that £50,000 to £90,000 range to take a bold step towards keeping their businesses growing while also cutting back on the administrative hassle of MTD.
What other perks come with incorporation?
As a sole trader, your personal assets are closely intertwined with your business.
Incorporation makes your business a separate legal entity from you, which can shield you from any financial or legal ramifications of business decisions.
This can safeguard your home and personal assets in the event that things go wrong.
To help keep things on the right track, incorporating also opens up new doors for investment and finances.
Incorporation signals to investors a level of professionalism and stability that they overlook with sole traders.
This opens new avenues of growth capital that sole traders simply cannot access.
If your business is growing, it could be time to think about spreading the workload.
You have come so far on your own, but it could be time to get a team behind you.
Incorporating provides the structure to safely onboard employees so that you can get additional help and support to grow your thriving business.
When embracing growth, it is important to keep a clear head.
Pace yourself with investment and expansion, otherwise your business growth may end up short-lived.
Before you incorporate or make any major financial decision, it pays to seek professional guidance.
We are on hand to help you accelerate your business’s growth without having to deal with the burden of MTD.
Don’t get unnecessarily trapped by MTD for IT obligations. Speak to our team today to unlock your business’s financial future!