Are you considering making the move from sole trader to limited company and do you live or operate in the Eindhoven area? If so, it is worth understanding exactly what is involved before you take the plunge. The conversion is a serious step from both a tax and legal perspective, but with the right preparation the process is straightforward to work through.
When is a limited company tax-efficient?
The most common preliminary question is: would a limited company actually be beneficial for me? As a sole trader, you pay income tax on your profits under personal income tax rules, with a top rate of 49.5% once you exceed the highest tax bracket. A limited company pays corporation tax: 19% on the first €200,000 of profit and 25.8% above that. The tipping point at which a limited company generally becomes more advantageous falls broadly between €90,000 and €120,000 profit per year in 2026, depending on your personal circumstances, deductions and future plans. You should also factor in the mandatory director-shareholder salary: in 2026 the statutory minimum is €58,000 gross per year. Bespoke tax advice is essential here, as the tipping point varies from one business owner to another.
The three routes for making the switch
There are three ways to convert your sole trader business to a limited company. Which route suits you best depends on your tax position, your hidden reserves and your plans for the future.
Tax-neutral contribution
With a tax-neutral contribution, you transfer your business to the limited company at existing book values. You do not have to settle tax on hidden reserves or goodwill at the point of conversion; that tax liability is rolled over into the limited company. This is by far the most commonly used route. There are conditions attached: in principle you may not sell the shares for three years and you must genuinely continue the business within the limited company.
Taxable contribution
With a taxable contribution, you sell your business to the newly incorporated limited company at market value. You settle tax immediately on hidden reserves and goodwill, giving rise to cessation profit. This can be attractive if you intend to sell the limited company in the short term, or where revaluation of assets is desirable. Through the cessation deduction and a potential cessation annuity, you can partially reduce the tax burden on that settlement.
Assets and liabilities transaction
The assets and liabilities transaction is the most straightforward option: you sell all the assets and liabilities of your sole trader business to the limited company. One advantage is that you do not need approval from HMRC and no mandatory notarial deed of contribution is required. The downside is that the transaction does not take effect retrospectively and you may still be faced with cessation profit here too.
Step-by-step guide to the conversion
Below you will find the key steps set out in order, so you know what needs to be arranged and when.
- Have a tax comparison drawn up. Ask a tax adviser to calculate whether and when a limited company would be advantageous for you, taking into account your profit forecast, personal expenditure and available deductions.
- Choose the right contribution route. Tax-neutral, taxable or assets and liabilities: the choice has direct tax consequences. Take advice on which option best suits your circumstances.
- Prepare an opening balance sheet. Your tax adviser will help you draw up an accurate opening balance sheet covering all assets, liabilities and any valuations.
- Submit the letter of intent to HMRC. If you wish to convert retrospectively from 1 January, for a tax-neutral contribution the letter of intent must be received by HMRC before 1 October. For a taxable contribution the deadline is 1 April of that same year. Please note: the date of receipt counts, not the date of dispatch.
- Incorporate the limited company via a notary. The notary prepares the deed of incorporation and, in the case of a tax-neutral or taxable contribution, a deed of contribution as well. This records all the assets and liabilities being transferred.
- Register with Companies House and obtain a new VAT number. The notary arranges registration of the limited company with Companies House and deregistration of the sole trader business. The limited company receives a new company registration number and a new VAT number.
- Set up your administration. This includes processing the director-shareholder salary, payroll submissions, VAT returns in the name of the limited company and the annual obligation to file (abbreviated) accounts at Companies House.
- Notify your bank, clients and suppliers. Your new legal structure has implications for existing contracts, your bank account and any licences you hold. Make sure you pass on your new details to all relevant parties in good time.
Key practical points to bear in mind
- Start the process in good time: deadlines are strict, particularly if you wish to convert retrospectively.
- Allow for the mandatory market-rate salary of at least €58,000 gross in 2026.
- As a sole trader, after conversion you will lose the self-employment allowance, start-up allowance and SME profit exemption; these apply exclusively to personal income tax businesses.
- Consider whether a holding structure would be worthwhile, for example for asset protection or future business succession.
- The limited company is only legally in existence as a business once the notarial deed has been signed; any activities prior to that point fall under a pre-incorporation agreement.
- Ensure that the administration at the transition date ties in with the chosen reference date, so that no extensive corrections are needed after the fact.
- Apply for a business bank account in the name of the limited company in good time; your existing sole trader account does not transfer automatically.
Timing is everything
The ideal time to start is around the turn of the year, so that you have a clean slate from an administrative point of view. If you wish to convert with retrospective effect from 1 January of a given year via a tax-neutral contribution, the letter of intent must be received by HMRC before 1 October of that year. After submission you then have until 1 April of the following year to formally incorporate the limited company through the notary and have the contribution executed by notarial deed. Plan the process well in advance, especially where special assets such as property or goodwill are involved.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekWhy Belastingadviseur Eindhoven?
At Belastingadviseur Eindhoven we guide business owners in the region through the entire process: from the initial tax comparison through to the incorporation and the setting up of your new administration. We work closely with notaries and are part of Adviesgroep Eindhoven, the one-stop shop for entrepreneurs in Brabant. This means you do not need to liaise between different parties and can be confident that everything fits together seamlessly. Would you like to find out whether a limited company is the right choice for you? Please feel free to contact us without obligation.
Frequently asked questions
From what level of profit is a limited company more tax-efficient than a sole trader in 2026?
There is no fixed threshold, but as a rough rule of thumb an annual profit of approximately €90,000 to €120,000 is considered the tipping point. This varies depending on your circumstances, available deductions, the level of personal income you require and your future plans. Always have a personalised calculation prepared by a tax adviser.
What is the difference between a tax-neutral contribution and a taxable contribution?
With a tax-neutral contribution, you transfer your business to the limited company at existing book values and do not settle tax on hidden reserves or goodwill; that tax liability is rolled over into the limited company. With a taxable contribution, you sell your business to the limited company at market value and settle tax immediately, which gives rise to tax on the gain but also provides greater flexibility if you wish to sell quickly.
What is the deadline for a tax-neutral contribution with retrospective effect from 1 January 2026?
For a tax-neutral contribution with retrospective effect from 1 January 2026, the letter of intent must be received by HMRC no later than 1 October 2026. You then have until 1 April 2027 to formally incorporate the limited company through the notary and have the contribution executed by notarial deed. Please note: the date of receipt by HMRC is the determining factor, not the date of dispatch.
What salary must I pay myself as a director-shareholder from my limited company?
HMRC applies the market-rate salary rules. In 2026 the statutory minimum is €58,000 gross per year. If the customary salary for comparable roles elsewhere is higher, you must use that higher figure. A tax adviser can determine the correct market-rate salary for your position.
Will I lose my self-employment allowance and SME profit exemption after converting to a limited company?
Yes. As a director-shareholder of a limited company these deductions no longer apply, as they are intended exclusively for personal income tax businesses. The tax advantage that a limited company structure offers at higher profit levels will generally more than compensate for this, but it depends on your individual circumstances.
We are happy to think along with you. For advice tailored to your situation we would gladly sit down with you. No rights can be derived from the content of this page and it may contain inaccuracies.
