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 freeview 'At a glance' guide to where to start with Incorporation.

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 Business.

This section 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 busines incorporating
  • Incorporation: checklist
  • Incorporation: Businesses & Trades
  • A partnership: Step-by-step
  • Property business/Buy-to-let
• When incorporation includes the disposal of the existing business to the new company, the business or its assets such as goodwill, land and property and intellectual property, plus staffing employment contracts of the existing business are transferred to the new company as a going concern. 
  • There are various Capital Gains Tax (CGT) reliefs, including s162 Incorporation holdover relief , s165 gift holdover relief available 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 takes you through a worked example of each type of CGT relief.
    • CGT reliefs: Disposal of a business or its assets
    • Business Asset Disposal Relief (BADR) - BADR is not available on the disposal of goodwill as the sole trader and the company will be connected (if the company is a close company).
  • 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
    •  Goodwill and the intangibles regime. 
• Incorporation may also produce some tax savings, depending on your business, although this requires a detailed consideration from 2023-24 with the combined increases of the Corporation Tax main rate and dividend rates. See:
  • Sole trader v. limited company: Tax differences & savings (2023/24) 
  •  Will I pay less tax if I trade in partnership? 
• 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 on 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 liabiliities or loans you will need to consider how to deal with these too.

See Incorporation: Businesses & Trades. 

Useful guides on this topic

Sole trader v. limited company: tax differences & savings (2023-24)
Is it better from both a tax and legal point of view to run your 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. 
This practical tax guide takes you through the whole process and includes worked examples to illustrate the 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 of incorporation of 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?

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.

An index to Capital Gains Tax reliefs 
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 limits and VAT rules after Brexit? What penalties might HMRC issue for late notification of registration?

Transfer of a Going Concern (TOGC)
What is a TOGC? What conditions must be met? What are the consequences of a TOGC? What case law is there?

 

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