What is a company formation and what are the tax implications?
Answered 17 March 2026
Company Formation and its Tax Implications
What is a Company Formation?
What the law says:
Under the Companies Act 2006, company formation is the process by which a company is registered with the registrar of companies. Upon registration, the registrar issues a certificate of incorporation stating the company's name, registered number, date of incorporation, whether it is limited or unlimited, whether it is private or public, and where its registered office is situated.
The certificate is conclusive evidence that the requirements of the Companies Act as to registration have been complied with and that the company is duly registered.
From the date of incorporation, the key legal effects are:
- The subscribers to the memorandum, together with such other persons as may become members, form a body corporate by the name stated in the certificate;
- That body corporate is capable of exercising all the functions of an incorporated company;
- In the case of a company having a share capital, the subscribers become holders of the shares specified in the statement of capital and initial shareholdings;
- The persons named as directors (or secretary) are deemed to have been appointed to that office.
The registrar must also publish notice of the issue of any certificate of incorporation in the Gazette, stating the name, registered number, and date of issue.
Tax Implications of Company Formation
1. Incorporation Relief (Capital Gains Tax)
What the law says:
Where a non-company person transfers a business as a going concern to a company, together with the whole assets of the business (or all assets other than cash), wholly or partly in exchange for shares issued by the company, roll-over (incorporation) relief under TCGA 1992 s.162 applies. The chargeable gains on the old assets are deferred by reducing the acquisition cost of the new shares received.
The amount deferred is calculated as the fraction A/B of the gain on the old assets, where A is the cost of the new shares and B is the value of the whole consideration received.
HMRC guidance / practice:
- This relief applies automatically when the conditions are met. It is available to individual partners where the whole of a partnership business is transferred to a company as a going concern, computed separately for each partner.
- Under ESC D32, where liabilities are taken over by the company on the transfer, HMRC will not treat such liabilities as consideration for the purposes of s.162, provided they are business liabilities (not personal liabilities of the transferor). This means no capital gain arises on the transfer if the other conditions of s.162 are satisfied.
- On incorporation, if the transferor has control of the company, the disposal of goodwill is a transfer between connected persons under TCGA 1992 s.286(6), and any goodwill transferred is deemed disposed of at market value under TCGA 1992 ss.17 and 18.
2. Goodwill and Intangible Assets (Corporation Tax)
What the law says:
Under CTA 2009 s.816A (as inserted by FA 2015), where a company acquires or creates a relevant asset (which includes goodwill, customer information, customer relationships, unregistered trade marks, and licences in respect of those assets), no debits are to be brought into account for tax purposes under the amortisation rules (Chapter 3 of Part 8 CTA 2009). Any debit on realisation is treated as a non-trading debit.
HMRC guidance / practice:
- "Incorporation" is the term used to describe the transfer of a business from an individual or partnership to a company where the individual(s) retains an interest. Because there is a transfer between legal entities, the company may recognise purchased goodwill on the acquisition.
- Prior to 3 December 2014, the company could obtain corporation tax deductions by setting accounting or fixed-rate debits for goodwill against profits. FA 2015 s.26 introduced changes to CTA 2009 Part 8 that removed this tax advantage on incorporation, as it was considered unfair compared to businesses that did not incorporate.
- The FA 2015 rules apply to goodwill and to other intangible assets commonly associated with goodwill (such as customer lists, customer relationships, unregistered trade marks, and licences), to prevent businesses from claiming relief for goodwill-type assets closely associated with a business's customers.
3. Change of Ownership / Control
HMRC guidance / practice:
HMRC would not normally consider the incorporation of a company, or the acquisition from a company formation agent of a newly formed company, as amounting to a change of control for the purposes of the "change of ownership" rules.
4. Employment-Related Securities
HMRC guidance / practice:
Shares acquired by the company formation agent (initial subscriber shares) on incorporation will not be employment-related securities and no report is required.
Summary Table
| Area | Key Point |
|---|---|
| Legal effect | Company becomes a separate legal entity (body corporate) from date of incorporation |
| CGT on transfer | Gains deferred via s.162 TCGA 1992 incorporation relief if business transferred for shares |
| Goodwill/intangibles | No CT amortisation deductions available post-FA 2015 on goodwill acquired on incorporation |
| Change of control | Incorporation not normally treated as a change of ownership by HMRC |
| Subscriber shares | Not employment-related securities; no reporting required |
Note: This is a complex area and the above covers the principal tax implications. Specific circumstances (e.g. stamp duty land tax on property transfers, VAT on the transfer of a going concern, or PAYE/NIC implications) may also arise and should be considered separately.
Citation sources
Part 35 The registrar of companies Certificates of incorporation Public notice of issue of certificate of incorporation 1064 1 The registrar must cause to be published— a in the Gazette, or b in accordance with section 1116 (alternative means of giving public notice), notice of the issue by the registrar of any certificate of incorporation of a company. 2 The notice must state the name and registered number of the company and the date of issue of the certificate. 3 This section applies to a cert
As gains and losses on disposals of partnership assets are treated as accruing to the partners, rather than the partnership, any claims for relief must be made by the partners separately. Guidance on specific issues arising on claims to roll-over relief (under TCGA92/S152) is given at CG61150 onwards. Note that relief is available to partners on their interest in assets owned by the partnership and in assets owned separately by one or more partners but used in the partnership trade, even if rent
Part V Transfer of business assets , business asset disposal relief and investors' relief Chapter I Transfer of business assets: General provisions Transfer of business to a company Roll-over relief on transfer of business. 162 1 This section shall apply for the purposes of this Act where a person who is not a company transfers to a company a business as a going concern, together with the whole assets of the business, or together with the whole of those assets other than cash, and the business i
PART 4 Income tax, corporation tax and capital gains tax Corporation tax Intangible fixed assets: goodwill etc 33 1 Part 8 of CTA 2009 (intangible fixed assets) is amended as follows. 2 In section 715 (application of Part 8 to goodwill), in subsection (2), at the end insert “ (see, in particular, section 816A (restrictions on goodwill and certain other assets)) ” . 3 In section 746 (“ non-trading credits ” and “ non-trading debits ”), in subsection (2), for paragraph (ba) substitute— ba section
‘Incorporation’ is the term that is often used to describe the transfer of a business from an individual, or partnership, to a company where the individual(s) retains an interest in the company. Because there is a transfer of the business from one legal entity to another, e.g. from an individual to the individual’s company, the company may recognise purchased goodwill and other relevant intangible assets on the acquisition of the business. Purchased goodwill is normally recognised when considera
“Change of ownership” means that a company either becomes a member of a group of companies, or ceases to be a member of a group of companies, or becomes subject to different control. The wide definition of “change of ownership” is designed to prevent artificial arrangements under which, for example, a company’s membership of a group changes for tax purposes when the economic reality is that it does not. However HMRC would not normally consider the incorporation of a company or the acquisition fr
ideration received by the transferor in exchange for the business; and for the purposes of this subsection “ the cost of the new assets ” means any sums which would be allowable as a deduction under section 38(1)(a) if the new assets were disposed of as a whole in circumstances giving rise to a chargeable gain. 5 References in this section to the business, in relation to shares or consideration received in exchange for the business, include references to such assets of the business as are referr
The incorporation of a business of a sole trader or a partnership is a common occurrence. If on the incorporation of a business the transferor has control of the company, the disposal of goodwill will be a transfer between connected persons within TCGA92/S286(6). Where the transfer is between connected persons, any goodwill transferred to the company will be deemed to have been disposed of for a consideration equal to its market value in accordance with TCGA92/S17 and TCGA92/S18. If you are deal
Where liabilities are taken over by a company on the transfer of a business to the company, the Revenue are prepared for the purposes of the ‘rollover’ provision in TCGA 1992 s 162, not to treat such liabilities as consideration. If therefore the other conditions of s 162 are satisfied, no capital gain arises on the transfer. Relief under s 162 is not precluded by the fact that some or all of the liabilities of the business are not taken over by the company. The concession applies only to busine
Part 2 Company formation Registration and its effect Effect of registration 16 1 The registration of a company has the following effects as from the date of incorporation. 2 The subscribers to the memorandum, together with such other persons as may from time to time become members of the company, are a body corporate by the name stated in the certificate of incorporation. 3 That body corporate is capable of exercising all the functions of an incorporated company. 4 The status , registered email
Part 2 Company formation Registration and its effect Issue of certificate of incorporation 15 1 On the registration of a company, the registrar of companies shall give a certificate that the company is incorporated. 2 The certificate must state— a the name and registered number of the company, b the date of its incorporation, c whether it is a limited or unlimited company, and if it is limited whether it is limited by shares or limited by guarantee, d whether it is a private or a public company,
The FA15 rules apply to goodwill and to other types of intangible assets that are commonly associated with and were typically subsumed within goodwill under old UK GAAP (FRS10). This is to ensure that the new rules will apply in relation to the relaxed recognition criteria in new UK GAAP (FRS102 s18 and IAS38). Without this extended definition many types of intangible assets, not previously recognised as separate intangible assets under old UK GAAP, would remain eligible for unrestricted relief.