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Rising profits in 2013, what should we advise now?

Given that more than nine months of the profits will be assessed on them as sole traders (01/04/13 to date) does anybody have any clever ideas about reducing the tax payable by "transferring" profits into the limited company?

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17th Jan 2014 10:18

Sorry

I don't understand the question!

Can you explain what you mean please, ie. what limited company and why only profits from 01/04/13 to date?

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17th Jan 2014 10:31

"Transferring"

If by "transferring" you mean moving profits made as a sole trader into a limited company, then you cannot do this at all. Profits made as a sole trader are a question of fact.

Whether it is worth incorporating them due to this historical trend of rising profits is another matter. Without you at least providing some figures, it is also a question that cannot be answered.

@ShirleyM. If I've interpreted the question correctly, hopefully this makes sense to you now. Presumably the 1/4/13 onwards is simply the profits not yet reported on a self-assessment return. If the 2012/13 return is already filed, then profits before that will have been reported to HMRC as from a sole trade.

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By JSJ54
17th Jan 2014 12:30

@stepurhan Thanks for your help, you have interpreted what I meant correctly.

One example is profits for the year ended 31 March 2013 (sole trader) £36,000

Profits 01/04/13 to date are approximately £33,000.

Profits from now to 31 March 2014 £8000

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18th Jan 2014 10:16

Transfer Season?

JSJ54 wrote:

One example is profits for the year ended 31 March 2013 (sole trader) £36,000

Profits 01/04/13 to date are approximately £33,000.

Profits from now to 31 March 2014 £8000

Are you hinting at a management charge, OP?

eg Incorporate now, and "transfer" a large chunk of the £36,000 + £33,000 = £69,000* profits to date to the limited company by way of a management charge?

If so, I'm not sure the panel would think much of that suggestion. Ethics? Legalities? Evasion?

 

*Last time I bothered checking it was still possible to produce a 21 month set of accounts for a sole trader; aggregated profits being time-apportioned.

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21st Jan 2014 17:13

Past Imperfect...?

JSJ54 wrote:

One example is profits for the year ended 31 March 2013 (sole trader) £36,000

Profits 01/04/13 to date are approximately £33,000.

Profits from now to 31 March 2014 £8000

Sound advice going forward, chaps, but I think the OP is about to submit an SA return for the £36k 2012/13 s/e profits (and envisages a £33k + £8k = £41k 2013/14 s/e profit). His question asks for "clever ideas about reducing the tax [already] payable by 'transferring' profits into the limited company".

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17th Jan 2014 17:04

One example?

Is this an actual client or a hypothetical situation? If it is an actual client, why are the figures you have given an "example"? Surely the client is either making rising profits or not.

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By JSJ54
18th Jan 2014 09:30

Example

I have three clients in this situation. I chose one as an example!

I'm not trying to pull the wool over your eyes.

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.

Why not just do it properly? There might be goodwill to transfer too if they incorporate in the right way.

 

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21st Jan 2014 12:06

Do it properly

Incorporate ASAP

Run the future revenue in the company. Pay nothing from the company as salary. Pay divs up to HRT threshold

 

Use the shareholders personal allowances against the whole years s/e profits.

 

Watch out for the rules on capital allowances

 

Watch out for goodwill valuation on sale and whether tax deductable in the ltd co books

 

That should keep the client happy

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21st Jan 2014 13:13

Follow Toms advice

and charge an increased fee for all the extrawork.

If you dont do it yet for all clients next year write in Feb/Mar 2014 with a suggestion that you do a pre year end review.

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By JSJ54
22nd Jan 2014 14:26

I am about to submit an SA return for the £36k 2012/13 s/e profits (and envisage a £33k + £8k = £41k 2013/14 s/e profit).

What I was interested in was a way of reducing the tax on the £41K profit which will be made in the year ending 05/04/14.

The best way would seem to be to start operating as a limited company asap. The £8K will then be made in the company. If I can extend the period of self employment to say 31/12/14 some of the £33K will fall into 2014/15 on apportionment.

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22nd Jan 2014 16:21

Riches to Rags?

JSJ54 wrote:

What I was interested in was a way of reducing the tax on the £41K profit which will be made in the year ending 05/04/14.

The best way would seem to be to start operating as a limited company asap. The £8K will then be made in the company. If I can extend the period of self employment to say 31/12/14 some of the £33K will fall into 2014/15 on apportionment.

Wouldn't that present your client with the practical difficulty of living on a zero income for the next 11 months?

(ie no more self-employed income, because future profits would 'transfer' to the limited company with immediate efect - save perhaps for a token amount to extend the life of the period of self-employment to next December. And no minimum level salary from the company either - because you've already earmarked his 2014/15 personal allowance to cover "some of the £33k" that "will fall into 2014/15 on apportionment".)

 

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By Flash Gordon
22nd Jan 2014 14:45

Clever idea

Tell him to find himself a really dodgy accountant with no ethics, morals or scruples. Then phone HMRC and drop him in it.

 

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