Switching from sole trader to a limited company: when, and what's involved

What are the signs it's time to switch?

Switching makes sense when you have a clear reason for it. Starting as a sole trader and incorporating later avoids the cost of a company before you need one. The reasons we see most often are:

• you want to bring on a co-founder or issue shares
• you're raising investment
• you want to build a business you can sell
• a client will only work with limited companies
• you want your business debts kept separate from your own
• your profit has grown to the point where the tax position is worth comparing

Our sole trader or limited company guide compares the two structures in full.

What do I need to do to switch?

Five jobs, roughly in this order. The company has to exist before it can own anything, so form it first.

Job	What to do	When
Form the company	Choose a name, appoint a director, name the shareholders and people with significant control, and register with Companies House (£100 online).	First
Business assets	Transfer equipment, stock and other assets to the company, and work out whether incorporation relief applies.	On the changeover date
Client contracts	Your contracts are with you personally. Ask each client to move the contract to the company, or let it end and sign a new one.	Before you invoice from the company
Bank account	Open an account in the company's name, so company money is kept apart from yours.	Once the company exists
HMRC	Tell HMRC you've stopped being self-employed, add Corporation Tax services for the company, and send your final Self Assessment return.	After the changeover

Sources: Set up a private limited company, Stop being self-employed, checked 3 November 2026

Will moving my business into a company trigger tax?

It can, because moving assets to a company counts as disposing of them, which may give rise to Capital Gains Tax. Incorporation relief can defer the gain when you transfer the business to the company in exchange for shares.

The rule changed for transfers on or after 6 April 2026. The relief must now be claimed by the person making the transfer, in their Self Assessment return for the tax year of the transfer, with brief details of the transaction, the tax computations and the type of business transferred. The old election to opt out of the relief (section 162A) is being repealed.

Whether the relief applies, and what it defers, depends on your assets. That is a point to take advice on.

What do I tell HMRC?

Use HMRC's online service to say you've stopped being self-employed, then send a final Self Assessment return before the deadline. It covers your trading income, allowable expenses (which can include some closing-down costs), capital allowances and any Capital Gains Tax due on assets you disposed of, up to your final profit or loss.

The company is a separate taxpayer. After you register it, add Corporation Tax services to the company's business tax account.