How to Transfer a Sole Trader Business to a Limited Company

In short: to transfer a sole trader business to a limited company, you set up the company, agree a value for the business and sell it to the company as a going concern, usually in exchange for shares. If the whole business (other than cash) moves across for shares, incorporation relief normally defers the Capital Gains Tax on goodwill until you sell the shares. You then close your self-employment with HMRC, register the company for Corporation Tax and move your contracts, bank account and VAT across.

Many sole traders reach a point where a limited company makes more sense, whether because of higher profits, a client that will only work with companies or the wish to separate personal and business risk. If you have already decided to incorporate, the next question is how to move the business you have built into the new company without creating an unexpected tax bill. This guide walks through each step using 2026/27 figures.

• Two ways to move from sole trader to limited company
• What moves across to the company
• Capital Gains Tax and incorporation relief
• How goodwill is valued and taxed
• Equipment, vehicles and stock
• If you own your business premises
• VAT on the transfer
• Unused trading losses
• Step by step: transferring your business
• Timing and your final self assessment
• A worked example
• Frequently asked questions

Two ways to move from sole trader to limited company

There are two routes. The first is to stop trading as a sole trader and start the company from scratch. The company buys nothing from you, and you simply begin invoicing through the company from a chosen date. This suits businesses with few assets and no real value tied to the name or client base, such as a consultant whose work depends entirely on their own time.

The second route is to transfer the business itself. The company takes over your clients, contracts, equipment, stock and goodwill as a going concern and carries on the same trade. This is usually the better route once your business has value of its own, because it lets the company use those assets from day one and opens up incorporation relief on any gain.

If you are still deciding whether a company is right for you, our guide to sole trader vs limited company compares the tax and admin side by side.

What moves across to the company

A transfer normally covers:

• Goodwill, meaning the value of your client base, reputation and trading name
• Equipment, tools, computers and vehicles used in the business
• Trading stock and work in progress
• Money owed to you by customers (trade debtors)
• Contracts and leases, where the other party agrees to the change

Cash in the business bank account usually stays with you. The company often takes on business liabilities such as supplier invoices, which reduces the net value it pays for the business. Personal debts stay with you.

Capital Gains Tax and incorporation relief

Selling your business to your own company is a disposal for Capital Gains Tax. Goodwill you built yourself usually has no base cost, so its full value counts as a gain. Without relief, you could owe tax on a gain without receiving any cash.

Incorporation relief, under section 162 of the Taxation of Chargeable Gains Act 1992, solves this. The gain is deducted from the base cost of the shares you receive, so no Capital Gains Tax is due until you later sell or give away those shares. The relief applies automatically when three conditions are met:

• You transfer the business as a going concern
• You transfer all the assets of the business, or all of them other than cash
• The company pays you wholly or partly in shares

If the company pays you partly in cash or credits part of the price to a director’s loan account, the relief covers only the share portion. The rest of the gain is taxable in the year of transfer. For 2026/27, the first £3,000 of gains is covered by the annual exempt amount, and the remainder is taxed at 18% or 24% depending on your income.

You can elect out of incorporation relief. Some owners choose to pay tax now and take a director’s loan account credit, which they then draw from the company tax-free over time. Business Asset Disposal Relief is normally not available on goodwill sold to a company you control, so model both options before deciding. Our guide to Business Asset Disposal Relief explains how that relief works.

How goodwill is valued and taxed

Goodwill is often the largest single asset in the transfer, and HMRC expects it to be valued at the price an unconnected buyer would pay. Common approaches use a multiple of maintainable profits or, in some sectors, a percentage of turnover. Goodwill that depends entirely on your personal skill and relationships may have little transferable value, while a business with recurring clients, systems and staff usually has more.

Keep a written valuation on file. You can also ask HMRC to check a valuation after the transfer using form CG34 before you file your tax return.

On the company side, Corporation Tax relief for writing off goodwill bought from a related individual is restricted. In most cases the company cannot claim a deduction as the goodwill is amortised, so do not assume a higher goodwill value will reduce the company’s tax bill.

Equipment, vehicles and stock

Equipment and vehicles

Equipment and vehicles you have claimed capital allowances on are treated as sold at market value. If that value is higher than the tax written-down value, you could face a balancing charge in your final sole trader accounts. Because you and the company are connected, you can jointly elect under section 266 of the Capital Allowances Act 2001 to transfer the assets at their tax written-down value instead. The election must be made within two years of the transfer. The company then continues claiming allowances from where you left off. It cannot claim the Annual Investment Allowance on assets bought from you.

Stock and work in progress

Stock is normally valued at market value on cessation, which can create a taxable profit on stock you have not yet sold. You and the company can jointly elect to value it at the higher of its cost or the price the company pays, which keeps the profit out of your final sole trader accounts.

If you own your business premises

Many owners keep property in their own name and let the company use it. Moving property into a company can trigger Stamp Duty Land Tax on its market value, because the company is connected to you, as well as a Capital Gains Tax disposal.

Keeping the property out of the company has a knock-on effect. Incorporation relief needs all the business assets other than cash to move across, so retaining the premises means the relief does not apply. Gift hold-over relief is the route often used in that situation. If property is involved, take advice before you sign anything. Our guide to limited companies for rental properties covers the property side in more detail.

VAT on the transfer

If you are VAT registered, the sale of the business to the company is normally a transfer of a going concern. That means no VAT is charged on the assets, provided the company carries on the same kind of business and is VAT registered or becomes liable to register.

The company can either register for VAT with a new number or take over your existing number by applying on form VAT68. Taking over the number keeps your customers’ records simple, but the company also takes on any past VAT errors attached to that number. We handle VAT returns for limited companies and can advise on which option suits you.

Unused trading losses

If your sole trade has losses you have not used, they do not move to the company. If you transfer the business wholly or mainly for shares, you can set those losses against income you receive from the company, such as salary and dividends, for as long as you keep the shares and the company carries on the business.

Step by step: transferring your business

1. Check the numbers. Compare your take-home pay as a sole trader and as a director, including the extra running costs of a company. Our guide to dividends vs salary shows how directors usually pay themselves.
2. Value the business. Agree a market value for goodwill, equipment, stock and debtors at the transfer date.
3. Set up the company. Incorporate at Companies House. The online incorporation fee is £100 from 1 February 2026, and every director and person with significant control must verify their identity. Our company formation service handles this for you.
4. Prepare a business transfer agreement. This lists the assets and liabilities transferring, their values, the transfer date and what the company pays, whether shares, a director’s loan account credit or both.
5. Issue the shares. The company issues shares to you in return for the net value of the business.
6. Move the practical side. Open a company bank account, transfer contracts with each client’s agreement, update insurance, licences, invoices and your website, and move any employees across on their existing terms under TUPE.
7. Register with HMRC. Register the company for Corporation Tax within three months of it starting to trade, set up a payroll scheme before the first payday and deal with VAT as above.
8. Close your self-employment. Tell HMRC you have stopped trading as a sole trader and file your final self assessment return.

Timing and your final self assessment

Since the move to the tax year basis in 2024/25, your sole trader profits are taxed by tax year. Your final self assessment return covers profits up to the date you stop trading, together with any gain on the part of the price not paid in shares and any salary or dividends the company has already paid you that year.

Cash flow needs planning. Your final self assessment balancing payment and the company’s first Corporation Tax bill, due nine months and one day after its year end, can fall close together. If you are already within Making Tax Digital for Income Tax, you still need to meet your obligations for the period up to the date you stop trading.

Choosing a transfer date at a natural break, such as the end of a month when stock is easy to count and debtors are clear, makes the accounts on both sides simpler.

A worked example

Sam has run a decorating business as a sole trader for eight years and decides to incorporate. The business is valued at £80,000: goodwill of £60,000, a van worth £15,000 and stock of £5,000. The goodwill has no base cost, so the gain on it is £60,000. The van is worth less than it cost, so there is no gain on it.

Option 1, all shares. Sam takes the full £80,000 in shares. Incorporation relief defers the whole £60,000 gain. No Capital Gains Tax is due now, and the base cost of Sam’s shares becomes £20,000 (£80,000 less the £60,000 deferred gain).

Option 2, part shares and part loan account. Sam takes £60,000 in shares and £20,000 as a credit to a director’s loan account. Because a quarter of the price is not in shares, a quarter of the gain, £15,000, is taxable now. After the £3,000 annual exempt amount, £12,000 is taxed. As a higher rate taxpayer at 24%, Sam pays £2,880, and can then draw the £20,000 from the company without further tax.

The figures are illustrative. Your own result depends on your valuation, your other income and how you plan to take money out of the company.

Frequently asked questions

Do I pay Capital Gains Tax when I transfer my sole trade to a limited company?

Not if incorporation relief applies in full. When you transfer the whole business, other than cash, as a going concern in exchange for shares, the gain is deferred until you sell the shares. Any part of the price paid in cash or as a loan account credit is taxable in the year of transfer.

Can I keep my business name when I incorporate?

Yes, provided the name is available at Companies House and meets the naming rules. Your trading name does not move across automatically, so register the company under that name or use it as a trading name, and update your invoices, contracts and website.

Can my VAT number move to the new company?

Yes. The company can apply to take over your VAT registration number on form VAT68. It then also takes on any past VAT liabilities linked to that number, so some businesses prefer a new registration.

Do my contracts transfer automatically?

No. A contract is between you and the other party, so each client, supplier, landlord or lender usually needs to agree to the company taking it over. This is often done by a short novation agreement or a new contract in the company’s name.

How long does it take to transfer a sole trade into a company?

A company can be incorporated within a day or two once identity checks are complete. The full transfer, including valuations, the transfer agreement, bank account and contracts, usually takes a few weeks, depending mainly on how quickly banks and clients respond.

Do I need an accountant to incorporate my business?

You are not legally required to use one, but the tax choices on goodwill, capital allowances, stock and VAT are made once and are hard to undo. An accountant can value the business, model the options and prepare the elections and returns so nothing is missed.