This section of the site provides guidance and checklists to assist in forming a new company, together with the incorporation of an existing business.
This is a guide for subscribers.
At a glance
At a glance
Incorporation is the process of forming a new company.
- A new business may commence trading via a new company; alternatively, an existing business may choose to become a company.
- For new businesses, see How to start a Company.
This guide is for existing businesses thinking about incorporation.
- An existing sole trader or a partnership business, including a Limited Liability Partnership (LLP), may decide to incorporate the business and trade via a company, for example, when the business expands and the protection of limited liability is desired. We have different guides for different types of businesses incorporating.
Overview
- When incorporation includes the disposal of the existing business to a new company, the business or its assets, such as goodwill, land and property, intellectual property, plus employment contracts of the existing business, are transferred to the new company as a going concern.
- Company and owner are connected: there are various Capital Gains Tax (CGT) reliefs available, including s162 Incorporation holdover relief, s.165 Gift holdover relief and Business Asset Disposal Relief (BADR), which may reduce or defer any gains made on incorporation, depending on the type of business; see:
- Incorporation: Businesses & Trades
How to incorporate: step by step using worked examples of each type of CGT relief. - CGT: Reliefs, disposal of a business or its assets
A summary of the different types of CGT relief. - Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business
Relief on the disposal of a business and its assets. - CGT: Rollover (Incorporation s.162) Relief
Defers gains on incorporation: an individual may roll over the gains arising from the disposal of the unincorporated business and deduct them from the base cost of the newly issued company shares. - CGT: Holdover/Gift Relief (s.165/s.260)
The gain on the disposal of both business and some non-business assets is deferred by holding it over.
- Incorporation: Businesses & Trades
- For purchases made on or after 1 July 2020, a company may receive tax relief on the cost of goodwill acquired from unrelated parties provided it is acquired alongside other "qualifying" assets; see
- Goodwill & incorporation: Tax issues
Consideration of the common tax issues in dealing with goodwill. - Goodwill and the intangibles regime
Summary of the corporate intangibles rules. - Incorporation may also produce some tax savings, depending on your business, although this requires a detailed consideration with the combined increases of the Corporation Tax main rate and dividend rates. See:
- Incorporation may be used to defer VAT registration for businesses that are not already VAT registered or required to be.
Planning points/pitfalls of incorporation
- Ensuring that there are no unexpected tax charges when the unincorporated business ceases trading.
- Setting up the share structure and articles of the new company correctly from the outset.
- Choosing the most advantageous method of incorporation with regard to available CGT reliefs.
- Valuation of assets, including goodwill. There are also special rules for Goodwill and trade-related properties, and valuation may impact the amount of Stamp Duty Land Tax (SDLT) payable.
- The write-off of Goodwill in the new company may have adverse effects where it does not qualify for tax relief.
- A number of VAT issues can arise when incorporating an existing business.
- PAYE for the new directors and transfer of an existing PAYE scheme.
- If the business has significant debts or liabilities or loans, you will need to consider how to deal with these too.
Small print & links
Useful guides on this topic
Sole trader v. limited company: tax differences & savings (2026/27)
Is it better from both a tax and legal point of view to run a business as a sole trader or as a company? Are there tax advantages in running a business as a company? What legal protections apply?
Incorporation: Businesses & Trades.
How to transfer an existing sole trader's business by incorporation into a company.
Incorporation checklist
This checklist covers how to incorporate an existing business.
Sale of occupational income; anti-avoidance
What are the tax effects of the anti-avoidance sale of occupational income provisions? How do you tax a capital sum received on the sale of an individual's earnings?
Goodwill & incorporation: Tax issues
What are the tax issues in respect of intangible property (IP) assets, such as goodwill, on incorporation? What tax reliefs apply if you buy and sell goodwill and IP? What are the valuation and clearance procedures?
Goodwill: Valuation
What valuation methods are suitable for valuing a business? What are the issues with goodwill and other intangibles? What does HMRC suggest? What do the courts think?
Goodwill: Trade-related properties
What are the tax and accounting issues when valuing goodwill in connection with the purchase or sale of a trade-related property? What are HMRC's views? What does case law tell us?
Capital Gains Tax: Reliefs on disposal of a business or its assets
Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of all or part of a business, its assets or shares?
Accounting for cessation followed by incorporation
This guide explains the tax and accounting treatment of a sole trader or partnership business in its final period before incorporation.
CGT: Capital Gains Tax reliefs index
There are numerous Capital Gains Tax (CGT) reliefs in the UK: when do they apply and what are the conditions for relief?
Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?
Transfer of a Going Concern (TOGC)
Buying a business and VAT, do you take over the previous owners' VAT registration? What is a Transfer Of a Going Concern (TOGC)? What conditions must be met? What are the consequences of a TOGC?