Moving Your Freelance Practice Into a Limited Company: The Tax & Accounting Implications Every Creative Should Understand

If you’re a designer, filmmaker, consultant, photographer, copywriter or any other kind of creative turning your sole trade into a limited company, you’re not just “changing the letterhead”. You’re effectively transferring a business from one legal person (you) to another (your company).

And when that happens, HMRC has rules. Of course they do.

Let’s break down what actually happens when you move from freelance to limited, in a way that makes sense.

1. You’re Creating a New Legal Entity (And That Changes Everything)

The biggest misconception freelancers have is:

“I’m just continuing my business in a company.”

Nope.

Your limited company is a separate legal person in the eyes of HMRC and Companies House.

That means:

• Your existing freelance business doesn’t magically turn into a company

• You must close down the sole trade (formally or informally)

• You then sell or transfer the business to your company

…and this has specific tax implications.

2. Is It a Transfer of a Going Concern (TOGC)?

If your freelance practice is already VAT-registered or hitting the threshold, this bit matters.

A transfer of a going concern (TOGC) allows you to move your business into your company without charging VAT on the assets you transfer.

For TOGC to apply, you must:

• Transfer a genuine, operating business (clients, brand, equipment, WIP, etc.)

• Ensure your company intends to carry on the same type of trade

• Register the company for VAT immediately if required

Get this wrong and HMRC could expect VAT on the value of the assets transferred, including goodwill.

3. You Are “Selling” Your Assets to the Company

Even though you own both the business and the company, the rules treat it as if:

Sole trader YOU sells business assets
to Limited company YOU (as director/shareholder).

This includes assets such as:

• Laptops, cameras, lighting, equipment

• Software licences

• Branding & IP

• Client lists

• Goodwill

What value do you use?

HMRC guidance says:

➡ If you transfer assets into a business, the value is market value at the date of transfer.
➡ But capital allowances restrict the value to no higher than original cost.

This matters for corporation tax and your own capital gains position.

4. Capital Gains Tax (CGT) — Goodwill Can Trigger a Charge

If your freelance business has “goodwill” (i.e. it's worth something beyond its assets), transferring it into your company could technically trigger capital gains tax, because you’re disposing of a business asset.

BUT in practice:

• Many small freelance practices have little market goodwill independent of the owner

• You may choose not to transfer goodwill at all (common for creatives)

• Incorporation relief (s.162 TCGA 1992) may apply if you transfer the whole business in exchange for shares

• HMRC often accept a nil or minimal goodwill valuation for personal-brand-driven businesses

This is an area where people can accidentally create a tax bill if they get too ambitious with valuations.

5. Capital Allowances on Equipment

Your company will claim capital allowances (writing down allowances, not AIA) on any equipment transferred, but only up to the lower of:

• the market value at transfer

• the original cost

If the kit is already heavily used or old, this may be negligible.

6. Your Company Takes Over Income & Expenses From Day One

A key rule:

Your company cannot earn money for work done before it legally existed.

So you must clearly split:

• Freelance jobs completed before the company begins trading

• Ongoing projects transferred to the company

• New work billed under the company

Each entity must record the income that belongs to it.

This catches loads of creatives out, especially if clients are slow payers.

7. Director’s Loan Account (DLA) – Where the Numbers Land

When you transfer assets into your company, the company now owes you for them.

It records this as a credit to your Director’s Loan Account (DLA):

• The company now “owes” you the agreed value of assets transferred

• You can withdraw this money tax-free later

• It’s your money, not salary or dividends

This creates a nice clean way to extract funds without extra tax.

8. What About Your Freelance Bank Account?

You should:

• Stop using it for new business transactions

• Transfer any business-related balances into the company

• Continue using it only to settle old freelance expenses or tax due

• Open a new company bank account for all company activity

Mixing personal, freelance and company transactions is the fast lane to messy accounting.

9. How to Close the Sole Trade Properly

There’s no dramatic ceremony needed, but you do need to:

1. Tell HMRC you’ve stopped being self-employed

2. File your final self-assessment including:

• cessation date

• balancing adjustments

• any capital gains

3. Pay tax on profits earned up to that date

If you had employees (rare for freelance creatives), you must close the PAYE scheme too.

10. Ongoing Responsibilities in the Company

Moving to a limited company means new ongoing obligations:

• Corporation Tax returns

• Annual accounts under FRS 105 or FRS 102 Section 1A

• Confirmation Statement

• Payroll & RTI (even for your own director salary)

• Workplace pension duties

• VAT (if applicable)

• Clear director’s loan records

• Legal responsibilities under Companies Act 2006

It’s not scary — but it is more structured than freelance life.

Final Thoughts

Moving your freelance practice into a limited company is often a smart move, especially for creatives growing quickly or wanting a more professional, scalable setup.

But it’s not just a case of “switching to Ltd”.

You’re:

• closing one business

• transferring assets

• potentially triggering VAT or capital allowances issues

• opening a new business with stricter reporting rules

Handled well, it’s smooth and tax-efficient.
Handled badly, it creates future headaches — especially for VAT, goodwill and director’s loan balances.

If you're planning an incorporation, we can help map out the tax and accounting side so everything transfers cleanly, without unexpected bills down the line. Why not book a meeting to discuss.