Transferring a sole trade business to a limited company was historically an easy way of saving tax and national insurance (NI). However, a succession of changes since 2016 have largely curbed the tax efficiency.

It all began with the reform of dividend taxation in 2016. Before this, dividends were treated as being received net of a notional tax credit. This was deductible in the self-assessment tax computation and meant any dividends that fell into the basic rate band did not actually suffer any tax.