This section of the site provides guidance and checklists on a wide range of issues concerning incorporation of an existing business.
- A sole trader or partnership business may decide to incorporate when the business expands and the protection of limited liability becomes an important issue.
- Incorporation may also produce some tax savings. Our guide: Will I save more tax if I trade through a company? summarises these.
- Incorporation involves the disposal of the existing business to the new company. There are various Capital gains reliefs (disposal of business assets) available to reduce or defer any gains made.
- The goodwill of the existing business is transferred to the new company. It can difficult to value as each business is different, this can materially effect tax position.
Planning points/pitfalls
Key areas include:
- Ensuring that there are no unexpected tax charges when the unincorporated business ceases trading.
- Setting up the share structure of the new company correctly from the outset.
- Choosing the most advantageous method of incorporation with regard to available Capital Gains Tax reliefs.
- Goodwill is difficult to value it may potentially be overvalued or undervalued on disposal.
- There are special rules for valuing trade related properties and valuation may impact on the amount of stamp duty land tax payable.
- The write off of goodwill in the new company may have adverse affects where it does not qualify for tax relief.
Our guides
Will I save more tax if I trade through a company?
This guide explains the advantages and disadvantages and summarises the tax savings you can expect to make.
Incorporating an existing business
This takes you through the whole process and includes worked examples to illustrate Entrepreneurs' Relief and the other Capital Gains Tax reliefs that are available to reduce or defer tax payable when a business is sold or transferred to a company.
Incorporation checklist
This is a step by step guide through the process.
Anti-avoidance: sale of occupational income
An income tax charge may arise where certain sources of income are disposed of from capital. These are subject to certain exemptions.
Goodwill & incorporation: tax issues
HMRC challenge goodwill where it is overvalued. This can be difficult to prove.
Goodwill: trade related properties
The valuation will affect stamp duty land tax as well as capital gains.
Valuation (of goodwill) for incorporation
Methods vary considerably from business to business.
Cessation (followed by incorporation)
The tax treatment of the business and its assets on cessation will depend on what is going to be incorporated into the new company and the various forms of Capital Gains Tax (CGT) relief claimed.
See also (in our Private Client section):
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