At a glance guide.

This section of the site provides guidance and checklists to assist in forming a new company together with the incorporation of an existing business.

Incorporation

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 Starting in Business: Start here.

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 when the business expands and the protection of limited liability is desired.
  • Incorporation involves the disposal of the existing business to the new company. 
    • The goodwill and other assets of the existing business are transferred to the new company as a going concern.
    • Businesses can be difficult to value as each business is different.
    • There are various Capital Gains Tax (CGT) reliefs (see CGT reliefs: Disposal of a business or its assets) available to reduce or defer any gains made on incorporation.
  • Incorporation may also produce some tax savings, depending on your business, see Sole trader v. limited company: Tax differences & savings (2020/21).
  • 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 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.

See Incorporating an existing business

What's new?

  • For the incorporation of an existing business made on or after 3 December 2014, goodwill is not a qualifying asset for CGT Business Asset Disposal Relief (Entrepreneurs' Relief) for disposals made by individuals to related party companies. 
  • Any company that acquires goodwill on or after 3 December 2014 from a related party is denied Corporation Tax relief under the corporate intangibles regime in respect of the write-down for accounting purposes of the amortised cost of goodwill acquired from a related party individual.
  • For purchases made on or after 8 July 2015, no company may receive tax relief on the cost of goodwill acquired from anyone. See Goodwill and the intangibles regime

Our guides

Sole trader v. limited company: tax differences & savings (2020/21)
Although tax may not be the primary driver to incorporation, this guide outlines the advantages and disadvantages and summarises the areas where tax savings may be possible.

Incorporating an existing business
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) 
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 may challenge goodwill where it is overvalued. 

Goodwill & incorporation: Valuation
Methods vary considerably from business to business.

Goodwill: Trade-related properties
The valuation will affect stamp duty land tax as well as capital gains.

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.

Index to CGT reliefs on the disposal of business and other assets
Confused by the different CGT reliefs? Here is a summary that outlines each of the key reliefs.

Registering for VAT
When do I need to register for VAT? When do I need to start charging VAT? What penalties might HMRC issue for late notification?

Transfer of a Going Concern (TOGC)
No VAT is charged on the transfer of a going concern (TOGC) for VAT purposes by a VAT registered seller provided that the buyer is VAT registered or becomes VAT registered as a result of the sale.

 

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