I'm about to take on a client to help them sort out quite a big pickle ... there are lots of areas to cover, so please bear with me!
Joe Bloggs set up a limited company 11 months ago through Duport. Joe Bloggs is a subcontractor, working in construction industry, doing project management on different projects and different sites. He (at the time) wanted and thought he was trading as a sole trader and hence has been invoicing under same company name (just without the LTD part). Fortunately, a business bank account was set up 11 months ago. Limited company is obviously still active at Companies House, but he has also registered himself as self employed (but only recently).
For tax beneficial reasons I'm thinking he'd be far better off trading under the limited company, from beginning of time? Obviously no filings have been done to date. As for self employment, I guess he could simply deregister?
Now this is where the tricky stuff starts:
Joe Bloggs registered for VAT 9 months ago (he has no certificate or documentation as everything was sent to a previous home address, lived in by an ex!!!!) - he has made one payment (plus a late penalty charge!) and still owes VAT for the last 6 months. When he registered, my assumption is that the legal status of business was set as a sole trader (as this is what he wanted to be) and he'd be under the standard VAT scheme. So to rectify this, would he just need to fill in a VAT 68 (change legal status), VAT 1 (for 'new' ltd business) and on top of this send in an application for Flat Rate Scheme? Can this all be back-dated to 9 months ago?
I wouldn't mind getting some peace of mind that my options I'm thinking about would be okay to go ahead with? I don't want to be doing anything that is not acceptable, just to get Joe Bloggs back on the straight and narrow and try save him some £££'s as he's late on his last tax return too!
If there is anything else I should be thinking about, your comments will be very much appreciated.
Thank you!
Replies (3)
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Not that complicated
On the principle of if it looks like a duck and quacks like a duck, it probably is a duck, your new client is clearly self-employed. He thought he was a sole trader, did not invoice as a company, operated through a bank account which was not in the company's name and apparently registered for VAT as a sole trader, so he is a self-employed sole trader.
Just get his VAT sorted out - get him to notify a change of address and then, apply for registration as his agent. When you have activated that, you can print off the certificate of registration to confirm his status and find out what returns are outstanding.
If he agrees to start trading through the company, then register the company for VAT now, but I would suggest not transferring the VAT number on a VAT68 in view of the past history of late filing. If you think that the FRS would be beneficial, apply for FRS from the date of registration and claim the 1% discount. Also, he will need to open a bank account in the company name and put the company details on his invoices.
All good advice. I would
All good advice. I would suggest that you get some fee money up front as I suspect that there will be some tax bills to pay. If the client refuses I would consider walking away.
Transactions
If the company has not entered into contracts or there is no corroborative evidence that the company was trading eg. invoicing in company name showing company registration number, then, as Euan says, surely the transactions belong to the sole-trader?
Yes it might have been advantageous to have traded via the limited company at the outset. But he didn't do that, did he?