Should Creative Freelancers Switch from Sole Trader to Limited Company to Avoid MTD for Income Tax?

If you’re a creative freelancer — maybe a designer, filmmaker, or content creator — you’ve probably heard whispers (or groans) about Making Tax Digital (MTD) for Income Tax, due to start in April 2026.

It’s one of those phrases that sounds like it should make life easier… but in reality, for many sole traders, it’s going to add extra admin and stress.

So the big question some creatives are asking is:

👉 Would switching from sole trader to limited company help me dodge MTD?

Let’s break it down.

A quick recap: what is MTD for Income Tax?

From April 2026, if you’re a sole trader (or a landlord) with income over £50,000, you’ll need to:

• Keep digital records (apps, spreadsheets, or accounting software).

• Send HMRC quarterly updates of your business income and expenses.

• File an end-of-year finalisation statement (like today’s tax return, but on top of the quarterly updates).

In other words: instead of one tax return a year, you’ll be submitting five.

HMRC’s idea is that this makes tax “easier.” In reality, for most freelancers it means more deadlines, more bookkeeping, and (probably) more accountancy costs.

Why some freelancers are considering going limited

Here’s the key point:

Limited companies are not affected by MTD for Income Tax.

They still have their own reporting requirements (annual accounts, corporation tax return, confirmation statement, etc.) but no quarterly income updates under MTD.

That’s why some sole traders are wondering: “If I incorporate my business, can I skip MTD?”

The short answer is: yes — but it’s not quite that simple.

The pros of going limited

✅ No MTD for Income Tax – you’ll still file annual accounts and corporation tax returns, but not the quarterly MTD updates.

✅ Potential tax savings – depending on your profits, you may take home more after tax and NIC using a mix of salary and dividends.

✅ Professional image – some agencies and clients prefer working with limited companies.

✅ Limited liability – your company is legally separate from you, so your personal risk is reduced.

The cons of going limited

❌ Different admin – you may avoid MTD, but you’ll take on extra responsibilities: running payroll, filing accounts at Companies House, and stricter record-keeping.

❌ Director responsibilities – as a company director, you have legal duties you don’t have as a sole trader.

❌ Costs – running a limited company usually means higher accountancy fees.

❌ Not always tax-efficient – if your profits are modest (say under £30k), the tax savings may not outweigh the admin costs.

Should you switch just to avoid MTD?

For many freelancers, switching to a limited company purely to dodge MTD probably isn’t the best move.

Here’s why:

• MTD will be a pain, yes, but good software and a supportive accountant can make quarterly updates fairly painless.

• Limited companies can be more tax-efficient at higher profit levels — but if your profits are lower, you may actually pay more tax overall.

• The admin shift isn’t about less work — it’s just different work.

When going limited does make sense

Switching to a company might be a smart move if:

• Your profits are comfortably above £40k–£50k and rising.

• You’re working with agencies/brands that prefer dealing with limited companies.

• You want to split income with a spouse or partner by making them a shareholder.

• You’re looking for extra protection around liability.

The bottom line

If you’re a creative freelancer, don’t panic about MTD — it’s coming, but it’s not the end of the world.

Yes, becoming a limited company means you avoid MTD for Income Tax. But incorporation should be a business decision first (about tax efficiency, liability, and growth), not just a way to duck admin.

👉 If your profits are lower, or you like the simplicity of being a sole trader, stick with it and prepare for MTD with the right tools.
👉 If your business is growing and you’re already considering going limited, then MTD might just be the nudge that tips you over the line.

Either way, get proper advice before making the jump. The “best” option depends on your numbers, your lifestyle, and your long-term goals.

Fancy a chat to figure out what is right for you?

Book a free meeting with one of our experts.