UK SaaS sole trader to Limited company switch 2026/27: the GBP 50,270 trigger, incorporation relief s.162, and the clean transition timeline

You started the SaaS as a sole trader because it was the obvious thing. No incorporation forms, no second tax return, no Companies House filings. Year one, right. Year two, probably still. But somewhere between £40k and £60k of profit, the maths quietly flips — and the longer you ignore it, the more tax you hand HMRC for no reason.

The headline number is £50,270. That's the UK higher-rate threshold for 2026/27 and the cleanest practical trigger to switch. Below it, simplicity wins. Above it, every additional pound as a sole trader gets taxed at 42% marginal (40% income tax + 2% Class 4 NIC) — while the same pound through a Limited runs through corp tax (19% up to £50k, capped at 25%) and leaves as a salary-plus-dividend mix totalling ~26-29% all-in.

A worked example at £60,000 of profit shows a sole trader keeping roughly £41,000 versus a Limited keeping roughly £47,000 — a £6,000 uplift before employer pension contributions. This post covers the trigger maths, s.162 TCGA 1992 incorporation relief (transfers SaaS goodwill without a personal CGT bill), the transition timeline, the four reasons NOT to switch yet, the asset transfer balance sheet, five common mistakes, and a 30-minute ship-it.

The £50,270 trigger — why this is the number

UK personal income tax 2026/27: 0% to £12,570, 20% to £50,270, 40% to £125,140, 45% above. On top, a sole trader pays Class 4 NIC at 6% between £12,570 and £50,270, then 2% above (Class 2 was abolished April 2024).

The marginal hit on each pound of sole-trader profit:

Profit band	Combined marginal rate
£12,571 - £50,270	26%
£50,271 - £125,140	42%
£125,141+	47%

The jump from 26% to 42% is the inflection. The moment taxable profit crosses £50,270, every additional pound costs 16p more than the pound below. That's what makes £50,270 the threshold — not because someone invented a rule, but because the marginal arithmetic changes shape.

A Limited doesn't have these bands at the company level. Profits are taxed at corporation tax (single, lower rate), and only money you take out hits your personal income tax. That separation creates the saving.

2026/27 corporation tax landscape

Band	Profit range	Rate
Small profits	£0 - £50,000	19%
Marginal relief	£50,001 - £250,000	Effective 26.5% on the slice
Main rate	Above £250,000	25%

The marginal relief band sounds harsh, but the average across whole company profit stays sensible. £100k of profit pays roughly £22.75k — ~22.75% effective.

On top of corp tax, money leaving as a dividend hits dividend tax: basic 8.75%, higher 33.75%, additional 39.35%. The first £500 of dividends each year is covered by the allowance (down from £2,000). A £12,570 salary plus £37,700 of dividends sits exactly at the £50,270 threshold — the standard founder extraction pattern.

Worked example — £60,000 profit, side by side

Same SaaS, two structures. £60,000 of profit before any owner remuneration.

Sole trader path

Item	Amount
Income tax (basic £7,540 + higher £3,892)	£11,432
Class 4 NIC (6% band £2,262 + 2% band £195)	£2,457
Total tax + NIC	£13,889
Sole trader keeps	£46,111

For the typical under-40 founder, add Student Loan Plan 2 (9% above £27,295 = £2,943) plus payments-on-account cashflow drag. In-pocket reality lands closer to ~£41,000-£43,000.

Limited company path

Item	Amount
Profit before remuneration	£60,000
Salary £12,570 + employer NIC £479	(£13,049)
Profit subject to corp tax	£46,951
Corp tax @ 19%	(£8,921)
Distributable profit (paid as dividend)	£38,030
Dividend tax (basic £3,255 + higher £111)	£3,366
Student Loan Plan 2	£2,097
Total tax + NIC + SL	£14,863
Founder keeps in pocket	£45,137

At exactly £60k cash-out vs cash-out, the saving looks marginal. The Limited advantage shows up when you use the structure: retain earnings rather than distributing all of it (corp tax 19%, no further personal tax until extracted later — perfect for growth or a BADR-eligible exit), or add a £20,000 employer pension contribution (deductible before corp tax, no personal income tax, no NIC). At £60k profit with £20k pension + £12,570 salary, total tax + NIC drops to ~£7,500. Founder wealth (cash + pension) lands at £47,000+ vs the sole trader's £41,000 — a real £6,000-£10,000 advantage. The further above £50,270 you go, the bigger the delta. At £100k of profit, the Limited is £10,000-£12,000 a year ahead.

s.162 TCGA 1992 — the bit your accountant might not raise

You've been a sole trader for three years. The SaaS has £180,000 ARR. That customer relationship is goodwill — a chargeable asset for capital gains tax.

When you transfer the business to a Limited, you're disposing of goodwill from the sole trader's hands and acquiring it inside the company. Without planning, that disposal triggers personal CGT at 18% (basic) or 24% (higher) on FMV. For an established SaaS, goodwill at 1-2x ARR could be £200,000-£360,000 — a CGT bill of £36,000 to £86,000 on the day you incorporate.

s.162 TCGA 1992 stops that. It lets a sole trader transfer the whole business as a going concern to a Limited in exchange for shares. The capital gain on transferred assets — including goodwill — is rolled into the base cost of the shares you receive, rather than crystallised on transfer day.

Three conditions, all must apply:

1. Transfer of the whole business as a going concern (no cherry-picking).
2. Consideration wholly or partly in shares (a DLA credit for any portion means that slice is taxable).
3. Transfer is to a company.

The rollover is automatic — but you can elect out under s.162A within 2 years of 31 January following the tax year of incorporation, if an immediate gain suits your tax position. Calendar it on day one. HMRC's cessation rules for the sole trader side are at BIM81100.

You need a defensible goodwill valuation — typically DCF on recurring revenue at 1-2x ARR for healthy bootstrap-scale SaaS. Chartered accountant signoff, £400-£800 of fee, paper trail forever.

After incorporation, read our SaaS founder dividends guide and s.455 directors' loan tax guide — both apply once trading through a Ltd.

The clean transition timeline — 8 weeks, in order

Sequence matters. Wrong order creates personal income tax problems, misses s.162 conditions, or ends up in a dual-VAT mess.

Week -6 to -4: incorporate. Companies House WebFiling, £50, 24-hour turnaround. One ordinary share initially. Set the accounting reference date to align with cessation. Open a business bank account (Tide / Starling / Mettle, 2-7 days). Register for corporation tax and PAYE.

Week -3 to -1: prepare cessation accounts. Pick a clean month-end. Sole trader self-assessment covering 6 April to cessation filed by 31 January after the tax year ends. Basis-period reform from 2024/25 means cessation profits go fully into the tax year of cessation.

Week 0: cessation day = transfer day. Asset transfer agreement signed: all assets and liabilities transfer to the Limited in exchange for shares (s.162 mechanics). File Form SH01 within one month. Send a one-paragraph email to every customer assigning the contract to Newco Limited. Update Stripe / GoCardless.

Week 1 onwards: Limited trading. First payroll run (£12,570/year salary = £1,047.50/month, RTI monthly). First customer invoice in company name. DLA ledger maintained.

VAT registration timing. The 2026/27 VAT threshold is £90,000 of rolling-12-month VATable turnover, tracked separately for sole trader and Limited. If sole-trader turnover is approaching £90k, incorporating before crossing it restarts the company's 12-month clock. If you're already VAT-registered with B2B customers, register the new company for VAT immediately on incorporation.

4 reasons NOT to switch (yet)

The £50,270 trigger is a strong default — but four scenarios genuinely flip the answer.

1. Planned exit within 2 years. BADR (14% from 6 April 2026, rising to 18% from 6 April 2027) requires you to have been an officer or employee AND held at least 5% of shares for at least 2 years before disposal. Incorporating today resets that clock. If you're heading for an acqui-hire or trade sale within 2 years, stay sole trader and sell the business assets directly.

2. Profit consistently below £30,000. Sole trader marginal rate (26%) sits below the all-in Limited rate once you factor in employer NIC, dividend allowance erosion, and the admin overhead of a second tax return + Companies House filings. Sole trader admin is ~4-6 hours/year. Limited admin is 15-25 hours/year. Admin alone, at £40-£60/hr of founder time, eats the tax saving below £30k.

3. IR35 contractor SaaS pretending to be SaaS. If "the SaaS" is one or two consultancy contracts wearing a SaaS-shaped hat — billing time, embedded in client teams — HMRC's off-payroll rules may apply at the Limited level. The end-client may deduct PAYE+NIC regardless of structure. Genuine SaaS is fine. Disguised consultancy is a trap.

4. Maternity break or part-time pivot imminent. Limited is best when optimising for high, consistent extraction. If you're heading for a 9-12 month break or part-time work, sole trader is lower friction (no PAYE, no annual filings, no liquidator fees). Incorporate when full-time work resumes.

The asset transfer balance sheet — line by line

Cleanest cessation/opening pair for a typical 3-year-old indie SaaS doing £80k ARR.

Cessation balance sheet (last day as sole trader)

Asset	Amount	Transfer at
Laptop + peripherals	£1,400	NBV
Trade debtors	£6,200	Face value
Accrued income	£1,800	Face value
Cash at bank	£18,400	Face value
Goodwill (DCF on £80k ARR, 1.25x)	£100,000	FMV (s.162)
Total assets	£127,800
Trade creditors	£900
Accrued expenses	£600
Deferred revenue	£8,400
Total liabilities	£9,900
Net assets at FMV	£117,900

Opening balance sheet (Newco Limited, day 1). The company recognises the same assets and liabilities, and issues shares equal to net assets received. Most founders use £1 ordinary shares — 1,000 shares at £1 par with £116,900 in share premium.

The crucial line: the £100,000 of goodwill sits on the company balance sheet at full FMV, but the gain that would have crystallised personally is rolled into your share base cost (s.162). When you eventually sell or wind up, CGT starts from £117,900 — protecting £100k of gain. Any difference between assets transferred and shares issued credited to a DLA does not qualify for s.162 relief. Cleanest: shares only, no DLA balance from incorporation.

5 mistakes UK SaaS founders make on incorporation

1. Incorporating at £25k of profit "to look professional". Pure admin overhead with no tax benefit. Customers don't care whether the counterparty is "Bob Smith t/a SaasCo" or "SaasCo Limited" — what matters is the product. Incorporate when the maths flips, not when the ego flips.

2. Ignoring VAT registration timing. Sole trader £88k turnover, incorporates, company £91k in first 12 months. Forgot to register the company for VAT mid-year, owes HMRC ~£18,000 of unrecovered output VAT. Track the company's rolling 12-month turnover from day 1 and register before you cross £90k.

3. No shareholders' agreement for solo founder. Six months in, you bring in a technical co-founder for 25%. No vesting, no good-leaver/bad-leaver. Co-founder leaves at 18 months with their 25% intact, blocking future fundraising. Even solo, set up with a simple founders' agreement template that accommodates future shareholders cleanly.

4. Missing the s.162A election deadline. Auto-rollover under s.162 is the default. But if you have brought-forward personal capital losses, you might want to crystallise the gain. The s.162A election to disapply rollover must be made within 2 years of 31 January following the tax year of incorporation. Calendar it on day 1.

5. Transferring goodwill at zero. The "I'll just say goodwill is nil and avoid the valuation argument" approach. HMRC knows established SaaS has goodwill, and a transfer at zero gets challenged — especially if the company later sells for a meaningful sum. Under-valuation triggers a personal CGT bill at the original FMV anyway, plus interest, plus possible penalties. £400-£800 of accountancy fee for a defensible memo is the cheapest insurance you'll buy.

The 30-minute incorporation ship-it

You've decided. £60k+ profit, 12+ months of runway, no exit within 2 years, genuine SaaS. Incorporate this afternoon.

1. Companies House WebFiling. "Incorporate a private limited company", £50 fee. Model articles. SIC 62012 (software dev) or 62020 (IT consultancy). Sole director, sole shareholder, one £1 ordinary share. Approval within 24 hours.
2. Business bank account. Tide / Starling / Mettle, fully digital, 1-2 days.
3. Register for corporation tax via Government Gateway. UTR by post 1-2 weeks later.
4. Register for PAYE. Use BrightPay (free for 3 employees and under in 2026) for monthly RTI.
5. Set cessation date 4-6 weeks ahead — time to draft the asset transfer agreement.
6. Asset transfer agreement + goodwill valuation memo. Chartered accountant signoff (£400-£800). Sign on cessation day.
7. File SH01 within 1 month of issuing the s.162 consideration shares.
8. Notify customers. One-paragraph email on cessation day. Update Stripe / GoCardless.
9. Register for VAT if turnover is approaching £90k or you want B2B credibility.
10. Calendar: s.162A election deadline (31 Jan + 2 years), first CT600, first CS01, first accounts.

Total founder time: ~90 minutes over 6 weeks plus the memo. Total cost: £50 + £400-£800 + £100-£200/mo for an accountant. Pays for itself in the first month of saved tax above £50,270.