Going Limited?

[SpongeBob]

Tweet

I'm planning on changing from a sole trader to a limited company early next year and hoped that some of you here who have done this could answer a couple of questions about it.

Firstly, how did you move all your network accounts over? Did you just update your details on the networks?

Secondly, how did you account for the money coming in over the transition period? E.g. I currently account for money as it arrives in my account, using cash accounting. However, when I go limited and get an accountant I expect I'll be accounting based on the invoices. So I'm not sure how I'd go about untangling the money so it's not counted twice, or missed out.

Thirdly, did you keep your sole trader business running too while things were shifted over, or did you close it down the day you started the Limited company?

[Barry]

I'm planning on changing from a sole trader to a limited company early next year and hoped that some of you here who have done this could answer a couple of questions about it.

I'll try

Firstly, how did you move all your network accounts over? Did you just update your details on the networks?

Just changed the names on my accounts over.

Secondly, how did you account for the money coming in over the transition period? E.g. I currently account for money as it arrives in my account, using cash accounting. However, when I go limited and get an accountant I expect I'll be accounting based on the invoices. So I'm not sure how I'd go about untangling the money so it's not counted twice, or missed out.

I still do cash accounting as a limited company. (I think you can until a million turn over or something)

Thirdly, did you keep your sole trader business running too while things were shifted over, or did you close it down the day you started the Limited company?

I closed my sole trading down and sold my personal websites to my business.


Ta

Baz

[hrbs]

Hi

The process is very straight forward.

Firstly you need to decide when to sell the business to the company. eg 31 March 2010 (used in example below). This will be the cessation date for the sole trader business. Any commissions owed to the sole trader business will be included as debtors in the final sole trader accounts. You can't carry on the sole trader business as you would have sold it to the company.

The limited company will receive the outstanding commissions on your behalf and they can be paid to you with no further tax consequences as they would have already been included in your sole trader accounts and your taxable income for 2009/10. The amounts would be loaned by you to the company until you withdrew them.

Commissions would not be double counted or missed out.

Next ...
1. Form the company (I recommend this is done a month or so before the sole trader cessation date) [a guide is at http://hrbs.biz/id?10112 ]

2. Open a company bank account (The company has to be formed first as it has to exist before it can open an account) . Do this as soon as the company is formed as it can take several weeks to go live (depending upon the bank)

3. On 31 March 2010 (or first thing on 1 April) , log in to all networks and download details of commissions owed to you and also amounts owed to Yahoo, Adwords etc.

4. On 1 April change account name and bank account details with networks

5. Change standing orders, direct debit instructions, Adwords account etc to new company name and bank details

6. Register limited company for VAT

7. Transfer sole trader VAT registration to limited company to be effective 1 April 2010

8. Advise HMRC that you have ceased as a sole trader and stop paying class 2 NIC

9. Register PAYE scheme (to start 30 April)

Depending upon your VAT return period, the next VAT return may include figures from the sole trader and limited company as the limited company has taken over the sole trader VAT registration and business.

For example if the business was transfered 1 April (cessation 31 March) and the VAT return period is Feb to April. The April return will include figures for Feb & March (sole trader) and limited company (April). A VAT return is a report to HMRC of specfic information for that period for the VAT registered business and as the VAT registration is transferred from sole trader to limited company, so does the obligation to submit the VAT return.

Hope this helps

Keith
HRBS.biz 01226 379000

[hrbs]

Hi

I still do cash accounting as a limited company. (I think you can until a million turn over or something)

Cash accounting is not allowed for accounts and tax purposes by HMRC for neither income tax nor corporation tax. However, cash accounting is allowed for VAT purposes.

I would suspect that your accountants have prepared your accounts on the correct basis and made the necessary year end adjustments to take into account amounts due to and from your company.

Per HMRC Self Assessment helpsheet HS 222

To arrive at the profits it is necessary to draw up accounts using the methods which accountants have developed for dealing with income that has been earned but not received, expenses which have been incurred but not paid or paid but not fully used, and so on. And the profits arrived at using these methods (the commercial profits) have to be adjusted for tax purposes. This is because in arriving at the commercial profits some items of income or expense may be recognised as not taxable or tax deductible, and other special allowances may reduce the amount of profits which are taxable.

Company Directors are legally required to prepare accounts which follow the rules set out in the Companies Act. They are similar to the rules above but also have additional requirements regarding the information to be contained in the notes to the accounts.

If accounts are prepared on the cash basis then the profits have been potentially misreported and HMRC may start an investigation which means that the accounts may have to be re-done on the correct basis and any underdeclared tax (plus interest) paid. Investigations of this type do happen.

Regards

Keith
HRBS.biz 01226 379000

[Barry]

Hi ya

Your right Keith, I guess thats what my accountant does

My VAT is done by looking through my bank account and just making sure I have an invoice or a receipt - but for my end of year accounts - I have to pick a number out the air guessing how much I am owed and submit that with my accounts.

I say I pick a number out the air, but basically I add up all is owed to me as confirmed commissions (I dont included pending ones) and he uses his accountancy magic to make up the forms to send away

Ta

[mikewilliams743]

Hi

The process is very straight forward.

Firstly you need to decide when to sell the business to the company. eg 31 March 2010 (used in example below). This will be the cessation date for the sole trader business. Any commissions owed to the sole trader business will be included as debtors in the final sole trader accounts. You can't carry on the sole trader business as you would have sold it to the company.

The limited company will receive the outstanding commissions on your behalf and they can be paid to you with no further tax consequences as they would have already been included in your sole trader accounts and your taxable income for 2009/10. The amounts would be loaned by you to the company until you withdrew them.

Commissions would not be double counted or missed out.

Next ...
1. Form the company (I recommend this is done a month or so before the sole trader cessation date) [a guide is at Company Formation | Running a limited company | Companies House | Company Secretarial | Directors : HRBS.biz | Fixed Fee Accountants | Free Guides | Save Tax | VAT Advice | Self Employment Help ]

2. Open a company bank account (The company has to be formed first as it has to exist before it can open an account) . Do this as soon as the company is formed as it can take several weeks to go live (depending upon the bank)

3. On 31 March 2010 (or first thing on 1 April) , log in to all networks and download details of commissions owed to you and also amounts owed to Yahoo, Adwords etc.

4. On 1 April change account name and bank account details with networks

5. Change standing orders, direct debit instructions, Adwords account etc to new company name and bank details

6. Register limited company for VAT

7. Transfer sole trader VAT registration to limited company to be effective 1 April 2010

8. Advise HMRC that you have ceased as a sole trader and stop paying class 2 NIC

9. Register PAYE scheme (to start 30 April)

Depending upon your VAT return period, the next VAT return may include figures from the sole trader and limited company as the limited company has taken over the sole trader VAT registration and business.

For example if the business was transfered 1 April (cessation 31 March) and the VAT return period is Feb to April. The April return will include figures for Feb & March (sole trader) and limited company (April). A VAT return is a report to HMRC of specfic information for that period for the VAT registered business and as the VAT registration is transferred from sole trader to limited company, so does the obligation to submit the VAT return.

Hope this helps

Keith
HRBS.biz 01226 379000 begin_of_the_skype_highlighting**************01226 379000******end_of_the_skype_highlighting

Thanks Keith, this was a really useful guide as its something I'm currently looking at doing!