Ask the Experts: Transferring a Business to a Limited Company

Making the transfer from a sole-trader or partnership, to a Limited Company is sometimes recommended by accountants for tax planning reasons or to benefit from Limited Liability and they will consider the following issues.

When:
Work out which side of a tax year end to transfer the business because this decision will affect taxable income (and rates) between tax years.

Documents:
A Company is a separate legal entity; this needs to be reflected in all legal documents including invoices, contracts, your website and any insurance policies.

Capital Gains Tax and hold-over elections (s.162/s.165 elections):
Transfer of a business can result in Capital Gains Tax. Valuation of assets (particularly ‘goodwill’) may be necessary and ‘hold-over elections’ considered and, if necessary, submitted to HMRC in order to reduce/postpone Capital gains Tax.

Payroll/PAYE:
Employees should be formally laid off with P45’s and transferred, prior to the transfer (in accordance with TUPE rules) to the Company’s payroll.

VAT: 
To transfer the VAT number, use form VAT 68 as soon as the business is transferred.

If there's anything you'd like to discuss regarding transferring a business to a limited company, please contact AMS Accountancy Ltd.