Journey

Change your business structure

Navigate the process of changing your business's legal structure - from sole trader to limited company, partnership, or LLP

Growing & Scaling Updated 15 September 2026

5 milestones references 7 guides

About changing your business structure

As your business grows, your original structure may no longer be the best fit. This journey helps you decide whether to change, understand your options, and navigate the transition process.

Common reasons to restructure include tax efficiency, liability protection, bringing in partners or investors, and meeting client requirements.

Decide if restructuring is right for you

Changing structure has costs and complexity. The benefits must clearly outweigh these before proceeding. Most sole traders consider incorporation when profits exceed around £50,000 annually.

Compare sole trader and limited company

Understand the tax, liability, and compliance differences between structures to inform your decision.

Structure comparison at a glance

The key differences are tax treatment, personal liability, and administrative burden.

Sole trader

Simplest to set up. You keep all profits but are personally liable for debts.

Partnership

Share responsibilities and profits. Partners share liability for business debts.

Limited company

Separate legal entity. Personal liability limited to investment, but more admin.

LLP

Partnership with limited liability. Must file accounts at Companies House.

Business structure affects tax liability, personal liability, and required paperwork. Professional advice is recommended when choosing the right structure.

Tax comparison by profit level

Tax savings from incorporation typically become significant above £50,000 annual profit.

The tax advantage of incorporation increases as profits rise. Below £30,000, administrative costs often outweigh savings. Above £50,000, incorporation typically saves £2,000-5,000+ per year.

£20,000 profit

Sole trader: ~£1,500 tax/NI | Ltd: ~£1,200 (minimal saving, accounting costs may exceed)

£30,000 profit

Sole trader: ~£4,000 tax/NI | Ltd: ~£3,200 (£800 saving, accounting costs ~£500-800)

£50,000 profit

Sole trader: ~£9,700 tax/NI | Ltd: ~£7,100 (£2,600+ saving after accounting costs)

£75,000 profit

Sole trader: ~£18,500 tax/NI | Ltd: ~£14,000 (£4,500+ saving)

£100,000 profit

Sole trader: ~£29,500 tax/NI | Ltd: ~£22,500 (£7,000+ saving)

Assumptions: Limited company figures assume optimal salary at Personal Allowance (£12,570), remainder as dividends. No other income sources. Single director/shareholder. Accounting costs excluded from Ltd figures.

Guv’s take

Get professional advice first. An accountant can model your specific situation and recommend optimal timing. The decision depends on your profit level, growth plans, and personal circumstances.
Choose your target structure

Your options depend on your current structure and business goals. Each transition path has different requirements and implications.

Option A: Limited company

Most suitable if you want tax efficiency at higher profit levels, limited liability protection, or need to attract investment (EIS/SEIS eligibility).

Set up a limited company

Requirements, costs, and ongoing compliance obligations for limited companies.

Corporation Tax rates 2026/27

Limited companies pay Corporation Tax on profits instead of Income Tax.

Small profits rate (up to £50,000)

19%

Marginal rate (£50,001 to £250,000)

Variable (marginal relief applies)

Main rate (over £250,000)

25%

Marginal relief provides a gradual increase between the small profits rate and the main rate for profits between £50,000 and £250,000. The effective marginal rate in this band is 26.5%.

Option B: Partnership or LLP

Suitable if you want to share ownership with others. An LLP provides limited liability while retaining partnership tax treatment (profits taxed on individual partners).

Choose a partnership structure

Compare general partnership, limited partnership, and LLP to find the right structure.

Partnership types compared

The main difference is liability protection - general partners have unlimited personal liability, LLP members do not.

General Partnership (GP)

No Companies House registration. All partners have unlimited liability. All partners can manage the business.

Limited Partnership (LP)

Must register with Companies House (fee £124). General partners have unlimited liability; limited partners' liability capped at contribution. Limited partners cannot manage.

Limited Liability Partnership (LLP)

Must register with Companies House (fee £100 online). All members have limited liability. All members can participate in management.

Scottish Limited Partnership (SLP)

Same as LP but has separate legal personality. Must file annual confirmation statement (fee £62) and register Persons with Significant Control.

All partnership types are taxed as pass-through entities. Partners report their share of profits on their personal Self Assessment tax returns. The partnership itself files a partnership tax return (SA800) but does not pay tax directly.

LLP registration fees

LLPs register with Companies House, unlike general partnerships which only register with HMRC.

Online registration fee

£100 (from 1 February 2026)

Same-day service fee

£156 (from 1 February 2026)

Paper registration fee

£124 (from 1 February 2026)

Online processing time

Usually same day

Same-day service deadline

Submit by 3pm Monday to Friday

Paper processing time

Longer than online

Registration form

LL IN01

Set up and run a limited liability partnership (opens in a new tab)
Transition from sole trader to limited company
This is the most common structure change. The process takes 1-2 months and involves registering your company, transferring assets, handling tax implications, and closing your sole trader registration.

Change from sole trader to limited company

Complete step-by-step process covering incorporation, asset transfer, VAT, employees, and closing your sole trader registration.

Incorporation timeline

Plan for 1-2 months from decision to completion across four phases.

Phase 1 - Preparation

1-2 weeks (name, structure, identity verification, accountant advice)

Phase 2 - Incorporation

1-2 days online (register, receive certificate, open bank account)

Phase 3 - Transfer

Within first month (assets, VAT, contracts, stakeholder notifications)

Phase 4 - Closure

End of tax year (notify HMRC, final tax return, close sole trader accounts)

Critical deadlines: Register for Corporation Tax within 3 months of starting to trade. Submit sole trader cessation notification and final Self Assessment by standard deadline (31 January following tax year end).

Incorporation costs

Companies House registration fees and processing times.

Online registration fee

£100 (from 1 February 2026)

Postal registration fee (Form IN01)

£124

Online processing time

Usually within 24 hours

Postal processing time

8 to 10 working days

Same-day incorporation fee

£156 (submit by 3pm, software filing only)

All companies must be registered with Companies House. The certificate of incorporation confirms the company legally exists and includes the company number and date of formation.

Register a company with Companies House (opens in a new tab)

Key tax considerations

Transferring your business to a company is technically a disposal for Capital Gains Tax purposes. However, Incorporation Relief can defer this liability.
Incorporation Relief conditions

If you transfer all assets (including goodwill) in exchange for shares, you may defer Capital Gains Tax.
Legislation

Section 162 Taxation of Chargeable Gains Act 1992

Effect

Defers CGT by reducing base cost of shares received

Claim required

Automatic (no claim needed before April 2026)

Claim required from April 2026

Must claim in Self Assessment return for transfers from 6 April 2026

Conditions for Incorporation Relief:
Be a sole trader or in business partnership
Transfer the business as a going concern
Transfer all assets (except cash)
Receive shares wholly or partly in exchange
If receiving mixed consideration (shares plus cash), relief only applies to the share proportion. The deferred gain becomes payable when shares are eventually sold.

Incorporation Relief (HS276) (opens in a new tab)
Business Asset Disposal Relief

If Incorporation Relief doesn't apply, you may qualify for a reduced 18% CGT rate on business asset disposals.

Rate to 5 April 2025

10%

Rate 6 April 2025 to 5 April 2026

14%

Rate from 6 April 2026

18%

Lifetime limit

£1,000,000 (gains since March 2020)

Important restriction: Business Asset Disposal Relief is not available on goodwill transferred to a close company where the transferor owns 5% or more of shares or voting rights after transfer. This means you cannot claim BADR on goodwill when incorporating your own business.

Business Asset Disposal Relief (opens in a new tab)

Corporation Tax registration deadline

Your new company must register for Corporation Tax within 3 months of starting to trade.

Registration deadline

Within 3 months of starting to do business

What counts as starting

Buying, selling, advertising, renting property, employing someone

UTR delivery

10-digit Unique Taxpayer Reference sent by post after incorporation

Set up your company for Corporation Tax (opens in a new tab)

VAT registration transfer

If your sole trader business is VAT-registered, you can transfer the registration to your new company as a Transfer of a Going Concern (TOGC).
TOGC requirements for VAT

Transfer your VAT number using form VAT68 if conditions are met.
VAT on transfer

No VAT charged if TOGC conditions met

Transfer mandatory

Yes - cannot opt out if conditions are met

Transfer form

VAT68 - Request for transfer of VAT registration number

Submit to

btc.changeoflegalentity@hmrc.gov.uk

TOGC conditions (all must apply):
Assets sold as part of business (not individually)
Buyer intends to operate same kind of business
If seller is VAT registered, buyer must be or become registered
If partial transfer, that part must be capable of separate operation
Not part of series of immediate consecutive transfers

Transfer a business as a going concern (VAT Notice 700/9) (opens in a new tab)
If you have employees

Your employees' contracts automatically transfer to the new company under TUPE regulations. You cannot avoid this obligation.
TUPE transfer requirements

Employees transfer with all existing rights and terms preserved.
Transfer effect

Employment contracts transfer automatically under TUPE

Written notice deadline

Within 1 month of transfer

Consultation required

For all affected employees, regardless of workforce or transfer size

Micro-business consultation

Employers with fewer than 50 employees may consult affected employees directly where fewer than 10 employees transfer and no representatives are in place

Terms changes

Cannot change terms due to transfer alone

Employee objection

Can object to transfer (treated as resignation)

Employee rights that transfer:
Same terms and conditions
Continuous employment preserved
Accrued holiday entitlement
Redundancy service rights

Transfers of undertakings (TUPE) (opens in a new tab)
Notification deadlines

You must notify various parties of the change within specific timeframes.

HMRC bank details change

14 days notice required

Director changes

Notify Companies House within 14 days

Address changes

Notify Companies House within 14 days

Share issues

Notify Companies House within 1 month

Constitution changes

Notify Companies House within 15 days

General changes

Notify Companies House within 21 days
Closing your sole trader registration

Once the company is trading, formally close your sole trader registration with HMRC.
HMRC notification

Must notify HMRC when ceasing self-employment

Notification method

Online via Government Gateway

Final Self Assessment

Submit by 31 January following tax year end

Class 2 NI

Ceases when self-employment ends

Record retention

6 years from end of relevant tax year

The final Self Assessment return must include:
Trading income up to cessation date
Allowable expenses (including professional fees for incorporation)
Capital allowances
Balancing charges on sold equipment
Capital Gains Tax on disposed assets

Stop being self-employed (opens in a new tab)
Transition to a partnership
If you're bringing in partners rather than incorporating, you'll need to create a partnership agreement and register with HMRC. For an LLP, you'll also register with Companies House.

Create a partnership agreement

Essential clauses covering profit shares, decision-making, exits, and disputes.
Essential partnership agreement clauses

A written agreement prevents disputes by setting clear expectations from the start.
A well-drafted partnership agreement should address these key areas to avoid relying on Partnership Act 1890 defaults.

Basic information

Full names, addresses, and contact details of all partners

Partnership trading name

Nature and scope of business activities

Commencement date and duration (fixed term or ongoing)

Principal place of business

Capital and finance

Initial capital contributions (cash, equipment, property, intellectual property)

Whether interest is paid on capital

Process for additional capital calls

Terms for partner loans to the partnership

Profit, loss, and drawings

Profit sharing ratio (equal, pro-rata to capital, performance-linked, or lockstep)

Loss sharing ratio (can differ from profit sharing)

Drawings - amount, frequency, treatment against profit share

Any salary or guaranteed payments

Management and decisions

Day-to-day management responsibilities

Voting rights (one partner one vote, or weighted)

Reserved matters requiring unanimity (new partners, major expenditure, sale of business)

Deadlock resolution provisions

Partner obligations

Time commitment (full-time, part-time, holiday, sickness)

Non-compete restrictions during partnership

Confidentiality obligations

Exit and dissolution

Exit mechanisms (retirement, expulsion, death provisions)

Valuation method for departing partner's share

Payment terms (lump sum, instalments, deferred)

Post-exit restrictive covenants

Dispute resolution

Escalation process (negotiation, mediation, arbitration, litigation)
Partnership Act 1890 defaults

Without a written agreement, these default rules apply - and they rarely match what partners intend.

If you have no written partnership agreement, or your agreement is silent on a matter, the Partnership Act 1890 default rules apply automatically. These may not reflect your commercial intentions.

Profit and loss sharing (s.24(1))

All partners share equally in capital, profits, and losses - regardless of contribution

Partner remuneration (s.24(6))

No partner entitled to salary or remuneration for acting in partnership business

Management rights (s.24(5))

Every partner may take part in management of the business

Interest on advances (s.24(3))

5% per annum on advances beyond agreed capital subscription

Interest on capital (s.24(4))

No interest payable on capital before profits are ascertained

New partners (s.24(7))

No person may be introduced as partner without consent of all existing partners

Ordinary decisions (s.24(8))

Decided by majority of partners

Fundamental changes (s.24(8))

Change to nature of partnership business requires unanimous consent

Partnership books (s.24(9))

Books kept at principal place of business; all partners have inspection rights

Partnership Act 1890 Section 24 (opens in a new tab)
Professional drafting costs

For complex partnerships, professional legal drafting is recommended.
Professional legal advice is strongly recommended for partnership agreements. Using a solicitor helps ensure the agreement reflects partners' intentions, avoids ambiguity, and overrides inappropriate Partnership Act defaults.

Typical cost range

£200-£600 depending on complexity

Factors affecting cost

Number of partners, complexity of profit sharing, property or IP involved, regulatory requirements

Find a solicitor (England and Wales)

Law Society Find a Solicitor service at solicitors.lawsociety.org.uk

Find a solicitor (Scotland)

Law Society of Scotland at lawscot.org.uk/find-a-solicitor

When solicitor involvement is essential

Complex profit sharing arrangements

Significant capital contributions

Property or intellectual property involved

International elements

Regulated industries (solicitors, accountants, medical)

Multiple partners

Find a Solicitor (Law Society) (opens in a new tab)
After changing structure

Your new structure brings new compliance obligations. Make sure you understand the ongoing requirements before completing the transition.

Company filing deadlines

Limited companies have strict deadlines for accounts, confirmation statements, and Corporation Tax returns.

First accounts deadline

21 months from incorporation date

Subsequent accounts deadline

9 months from accounting reference date

Company Tax Return (CT600)

12 months after accounting period end

Corporation Tax payment

9 months and 1 day after accounting period end

Confirmation statement

Annually (within 14 days of anniversary)

Example: For a year end of 31 March 2025, the Corporation Tax payment is due by 1 January 2026.

Late filing penalties

Companies House penalties for late annual accounts are automatic and escalate over time.

Up to 1 month late

£150

1 to 3 months late

£375

3 to 6 months late

£750

Over 6 months late

£1,500

Repeat late filing

Penalties doubled if late 2 years in succession

These penalties are automatic and in addition to any penalties from HMRC for late tax returns. Persistent failure to file can result in the company being struck off the register.

Late filing penalties (opens in a new tab)

LLP ongoing requirements

LLPs must file annual accounts and confirmation statements with Companies House.

Accounts filing deadline

9 months after accounting reference date

Confirmation statement frequency

At least once every 12 months

Confirmation statement fee (online)

£50 (from 1 February 2026)

Confirmation statement fee (paper)

£110

Strike-off application form

LL DS01

Strike-off application fee

£18 (from 1 February 2026)

LLPs must file annual accounts with Companies House, similar to limited companies. The confirmation statement (formerly annual return) confirms that company information held by Companies House is accurate and up to date. Failure to file accounts on time results in penalties and may lead to the LLP being struck off the register.

Related resources

Form a business partnership

Complete journey for setting up and running a partnership or LLP.

Company director duties

Understand your legal obligations as a company director.

How limited company taxes work

Corporation Tax, dividends, and director salary/dividend strategy.

solicitors.lawsociety.org.uk

Find a solicitor (opens in a new tab)

Professional help with partnership agreements or company formation.

Change your business structure

About changing your business structure

Decide if restructuring is right for you

Choose your target structure

Option A: Limited company

Option B: Partnership or LLP

Transition from sole trader to limited company

Key tax considerations

VAT registration transfer

If you have employees

Transition to a partnership

After changing structure

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