Dear Deirdre
Thinking I might switch from Sole Trader to Ltd Company at the year end.
Creating a new company seems like it would be straight forward enough if I was starting out from scratch but as a going concern what bumps and hiccups might there be in terms of continuity between the two?
I'd presume it would require a change of bank account (or can I just change the name of my existing account?).
I'm VAT registered - can that registration transfer to the new company or do I have to de-register myself and register the new entity?
Is it going to upset any clients/contracts I have if I've start a piece as work as the sole trader but finish as the ltd co? Or do I need to overlap the two businesses - continuing the sole trader business until those existing jobs are finished?
Yours - confused and putting off doing his accounts- Maccruiskeen
I believe you can sell the good will to the ltd company. Get your accountant to go through it with you.
TheDTs +1 for that is correct.
A limited company is its own legal entity.
I would create a new bank account just to show this just in case anyone official starts asking questions later.
Vat number I have no idea but I would think it would also have to change.
Ask on the Hmrc website perhaps?
Cheers for the replies - so in effect the new company will be an entirely new entity - not a reclassification and continuation of my existing business. So presumably the two can overlap - I was imagining that on monday I'd be a sole trade then on tuesday I'd be a company (or rather 'it' would be a company) but really I can start the ltd company on a given date and begin trading through it but wind up as a sole trader (and de-register it for vat etc) at any point after that.
Supplimentary question while I'm thinking about it. Both me and the GF are sole traders at present, mostly working on our own things but also working collaboratively perhaps 10% of the time.
Are there any comparative merits in creating one Ltd Co for both of us, versus us both creating separate companies?
Are there any comparative merits in creating one Ltd Co for both of us, versus us both creating separate companies?
Accountancy costs!
Potential for "income" to be by dividends if you want to be a shameless tax avoider.
Rob would do this if not waaay inside IR35
I went from sole trader to LTD about 1.5 years ago. Exactly same business, just for tax purposes..
Has been a bit of a headache to be honest.
What I save in tax now gets paid in accounting fees.
Also just remortgaged and that change threw a real spanner in the works for the bank. So if your thinking of buying property / remortgaging do before you change business.
Had to get new bank account & new VAT number.
Im sure there are some benefits, but at moment it has been quite a few teething problems.
Im sure accountant will advise both u & GF go on payroll, and pay basic salary, then rest in dividends.
Good luck
Potential for "income" to be by dividends if you want to be a shameless tax avoider.
Still pay 20% tax on all profits and you can't take a dividend without a profit so hardly avoiding tax.
hardly avoiding tax
Ok, NI then. NI being a tax by another name.
[quote=Rob Hilton said]
Ok, NI then. NI being a tax by another name.
Touché! 🙂
DON'T sell the "good will" of your old company if you are basically a one man band sole trader. HMRC will come and kick your back door in and take back. They recently did this to a mate of mine and put him out of business.
Re-apply for your VAT status. You may get a few percent off for the first year.
Speak to your accountant and nail them down on the charges.
Pick a short name. It drives me mad typing out my company name.
andy8442 - MemberDON'T sell the "good will" of your old company if you are basically a one man band sole trader. HMRC will come and kick your back door in and take back. They recently did this to a mate of mine and put him out of business.
Crikey. What exactly happen? Did HMRC want more money from the "goodwill"?
😯
[i]Are there any comparative merits in creating one Ltd Co for both of us, versus us both creating separate companies? [/i]
Single company, with more than one fee earner - this is what we do, just need to have an 'understanding' of how monies are divided.
tbh we just 50/50 everything, irrelevant of earnings and costs.
Long story, but the HMRC wanted all the "goodwill " back, reversing their own rules. My mate just didn't have the money, so folded his company. Needless to say, don't do it.
I looked into this but decided against it. As far as I remember, my business is vat exempt but I would have had no choice but for the new company to buy the good will from me the sole trader. HMRC. Would have expected tax on my gain/ income from the sale. It essentially created a big pressing tax bill which , we didn't feel, was going to offset by the gains in a lower tax bill given the profit the company would make.
Also if you take all the profit out of the business as your own wages, you still pay the same rate of income tax as before. I'd get some specific advice from an accountant you trust for your business to check its worth it.
It also makes it more difficult to dip into your business account to pay for holidays/ your boiler going wrong.
It also means that your financial records become public access which may or may not bother you
You can transfer your existing VAT registration - in which case if you are ever investigated, then they can still go back 6 years. Or you can apply for a new VAT registration, in which case they will only look at current financial transactions, but you will have more accounting to deal with - and maybe VAT that you have claimed on recent purchases to be repaid.
VAT aside, I'd only do it if you are in the 40% tax bracket - I'm doing it this year, but should have really done it some time ago.
Be careful with goodwill - if you have regular income, but little in the way of 'secured contracts' goodwill isn't worth much.
Good will depends very much on what your business is. In my industry (dentistry), it is almost entirely the value of a business and is bought and sold accordingly with associated large bank loans so it is inevitable that it must be considered in this sort of thing.
In other areas it's probably not so important
[i]It also makes it more difficult to dip into your business account to pay for holidays/ your boiler going wrong. [/i]
Not really, use Directors Loans - only 'issue' is if you have one out over the end/start of the Tax Year.
Fair point although don't you have to have a "board meeting" to approve it in theory?