Transfer of Debts to Ltd Co

Transfer of Debts to Ltd Co

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Hi

I am in the midst of taking my business forward and becoming a limited company. I have been trading for a little over 9 months and during my time as a sole trader I have used a credit card (in the name of the business) to aid with cash flow.

All purchases made on it have been related to the business, however is is possible to transfer this debt to the newly formed ltd company rather than leave it in my name and as such have to pay the tax on the money taken from the new company in order to pay it off!!

Any help will be appreciated!

Thanks

John

Replies (7)

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By occca
17th Jul 2013 08:40

No

Your sole trader business and your limited company are separate legal entities so you cannot transfer the debt over

You will need to take salary / dividends (if making a profit) from the limited company to clear this

You may however be able to transfer assets in to your limited company from your sole trader business, such as computer equipment

Have a quick chat with your accountant, they should be able to give you proper advice as they have all the facts

 

 

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By johngroganjga
17th Jul 2013 08:56

Agreed. You can't transfer a liability without the agreement of the creditor (for obvious reasons).

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By JCresswellTax
17th Jul 2013 09:11

Even if the creditor did agree though John

Surely the debt that was transferred would be regarded as personal as it has nothing to do with the Limited company's business?

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By johngroganjga
17th Jul 2013 09:50

Well it would be a liability of the company that the company had received consideration from it's shareholder for taking on. The consideration would presumably have to be a loan to the shareholder that the shareholder undertook to repay at some future date.

All this is most improbable as no creditor in its right mind would ever agree to such a transaction.

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By The Limey
17th Jul 2013 09:57

Surely the real thing here is that if the purchases were really for the business, they are an allowable expense - and therefore (effectively) paid out of pre-tax earnings? Given the complications with things like incorporation relief, you'd probably be best advised to engage an accountant.

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By johngroganjga
17th Jul 2013 11:28

The question is not about the allowability of the expenses incurred that have created the credit card liability. They have presumably been shown as expenses in the unincorporated accounts. The question is about whether the debtor can rid himself of the liability to repay the debt and transfer it to the company. The answer to that question is set out above.

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By The Limey
17th Jul 2013 15:33

I wasn't so sure - after all, the original question said he wanted to avoid having to pay tax on money taken out of the company to pay it off.

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