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Implications of incorporation on UK tax

The transfer of business assets and the business activity of a sole trader or a partnership into a company is known as incorporation. The UK income tax and UK national insurance contributions (NIC) implications of incorporation for sole traders and partnerships include:

1. Ìý

   •ÌýÌýÌýÌý balancing adjustments may arise on plant and machinery however the trader can elect to transfer plant and machinery to the company at tax written down value (CAA 2001, s 266) (see UK2.2.4)

2. Ìý

   •ÌýÌýÌýÌý stock is transferred at market value unless the trader makes an election to transfer it at the higher of cost or price paid (ITTOIA 2005, ss 177–178)

3. Ìý

   •ÌýÌýÌýÌý the owner as director of the company becomes liable to tax on benefits-in-kind in respect of private use of business assets (as opposed to these costs being disallowed as a deduction from profit)

4. Ìý

   •ÌýÌýÌýÌý there are several options to utilise any losses the unincorporated business has incurred (see UK2.8.4)

5. Ìý

   •ÌýÌýÌýÌý the trader no longer