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The short answer
To turn a sole trade into a limited company you register a new company at Companies House (£100 online, usually within 24 hours, with each director's identity verified), move the business and its assets into it, and tell HMRC the self-employment has ended. Transferring the whole business and all its assets except cash for shares can defer Capital Gains Tax through incorporation relief; for transfers from 6 April 2026, HMRC's manual says that relief must be claimed.
A sole trader and a limited company are different legal persons in one important way: as a sole trader you are the business, while a company is separate from you. Incorporating means creating that new person and moving your trade into it. It is not a change of form on an existing registration, so contracts, bank accounts, VAT and insurance all need attention. Here is the sequence and what each step involves.
Step 1: register the company
GOV.UK says registering online costs £100, paid by debit or credit card, and the company is usually registered within 24 hours; a postal application costs £124 and takes 8 to 10 days. You need a registered office address, at least one SIC code describing the business, a statement of capital, details of your people with significant control, and a Government Gateway ID for the company that is separate from your personal one.
Before registering, you may need to verify your identity with GOV.UK One Login, and you must give each director's Companies House personal code. Identity verification became a legal requirement on 18 November 2025 for new and existing directors and PSCs. If you hold a Nigerian passport, our guide to Companies House identity verification for Nigerian directors covers the routes.
Step 2: move the business across
Decide what the company takes over and on what terms. The usual items are:
- Equipment, vehicles and stock, sold or transferred to the company, with a written record of value.
- Goodwill: the value of the customer base and name. Valuing it needs care and is often where an accountant earns their fee.
- Contracts: customer and supplier contracts are with you personally, so they need to be novated or re-signed with the company.
- Premises: a lease in your name needs the landlord's consent to assign or a new lease to the company.
- Bank account: the company needs its own account; sole trader takings should stop going into your personal account.
- VAT: if you are registered, ask HMRC whether to transfer the existing VAT registration to the company or register afresh.
Incorporation relief
Moving assets into a company is a disposal for Capital Gains Tax. GOV.UK says you may be able to delay paying it through Incorporation Relief if you are a sole trader or partner and transfer the business and all its assets, except cash, in return for shares. The gain is taken off the base cost of the shares, so tax comes later when you sell them. In GOV.UK's example, shares worth £100,000 and a £60,000 gain leave a base cost of £40,000. Any part paid in cash is taxed in your next return.
Step 3: close the sole trade with HMRC
Tell HMRC you have stopped trading as a sole trader and file a final Self Assessment return covering the trade up to the transfer date. The company will need to register for Corporation Tax; see Corporation Tax registration for a new company.
Does a company pay less tax?
Not automatically. A company pays Corporation Tax at 19% on profits of £50,000 or less and 25% above £250,000, with marginal relief between. You then pay yourself through salary or dividends. For 2026 to 2027, GOV.UK lists a £500 dividend allowance and dividend tax of 10.75% basic rate, 35.75% higher rate and 39.35% additional rate.
Example: £45,000 profit, 2026 to 2027, England
| Sole trader | Company, all profit as dividends | |
|---|---|---|
| Business tax | None | Corporation Tax £45,000 x 19% = £8,550 |
| Taken out | £45,000 | £36,450 dividend |
| Tax-free | £12,570 Personal Allowance | £12,570 Personal Allowance + £500 dividend allowance |
| Personal tax | Income Tax £32,430 x 20% = £6,486 | £23,380 x 10.75% = £2,513.35 |
| National Insurance | Class 4 £32,430 x 6% = £1,945.80 | None on dividends |
| Total tax | £8,431.80 | £11,063.35 |
This is a simplified example: no salary, no other income, no expenses beyond those already in profit. A mix of salary and dividends changes the result, and the advantages of a company are often about limited liability, credibility with clients and keeping profits in the business rather than tax at this level of profit. Our guide to paying yourself salary and dividends goes further, and sole trader or limited company compares the two structures.
Checklist
- Get an accountant's view on goodwill value and the salary and dividend mix.
- Verify identity and register the company.
- Open a company bank account.
- Transfer assets for shares, and record values in writing.
- Move contracts, the lease and insurance into the company's name.
- Deal with VAT registration.
- File the final sole trader return and claim incorporation relief if you rely on it.
- Register the company for Corporation Tax.
Where Pryme fits
A company needs its own account. A Pryme Business Account can be opened from any country and holds GBP, NGN, USD and EUR, and comes with a Chief of Staff, Finance and Compliance agents that prepare work for a person to approve. This page is general information, not tax advice.
Questions people ask
How much does it cost to turn a sole trade into a limited company?
Registering the company online at Companies House costs £100 (£124 by post). Accountancy and legal costs for valuing goodwill and moving contracts are extra.
Is incorporation relief automatic?
The GOV.UK guide says so, but HMRC's manual (CG65735, updated October 2026) says transfers from 6 April 2026 need a claim, usually with the tax return. For a 2026 to 2027 transfer the deadline is 31 January 2029.
Can I keep my sole trader VAT number?
Ask HMRC. A VAT registration can sometimes be transferred to the new company, otherwise the company registers afresh.
Will a limited company save me tax?
Not always. In a simplified example at £45,000 profit with all profit taken as dividends, the company route costs more tax than staying a sole trader. The answer depends on profit, salary mix and what you leave in the company.
Sources
- GOV.UK: Set up a private limited company - Register your company · accessed Oct 2026
- Changes to UK company law: Identity verification · accessed Oct 2026
- GOV.UK: Incorporation Relief · accessed Oct 2026
- HMRC Capital Gains Manual CG65735: Claim for incorporation relief (transfers from 6 April 2026) · accessed Oct 2026
- GOV.UK: Corporation Tax rates · accessed Oct 2026
- GOV.UK: Tax on dividends · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.