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Changing sole trader second buissines to a ltd

Will losses setting up a new sole trading business affect recent paid tax if decided to go ltd

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Sole trader second business in the same field but then changing to ltd.

 

A sole trader that contracts their services out wants to set up a second sole trading business in the same field.

 

The second business will have its own premises and work carried out there will be independent of the first business but in a similar field.

 

My understanding is that the expenses of setting up the second business premises and purchasing equipment are to reduce the overall taxable profits from the first business.

 

However if the second business was then switched from being a sole trader business to a Ltd company after all the expenses have been absorbed by the first sole trading buissines and tax have been paid.

 

Would an adjustment have to be made to the reduced tax already paid from the sole trading business? Or can the new business start off without any debt and the sole trading business have benefited from the reduced tax liability?

 

Any help will be appreciated.

 

Replies (15)

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By zarar
11th Jan 2020 01:23

Why are they setting it up as a separate business?

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By Accountant A
11th Jan 2020 01:50

I think the "buissines" should appoint an accountant.

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By Tim Vane
11th Jan 2020 02:14

Get an accountant. Lots of issues here and you’ll need help dealing with this can of worms.

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RLI
By lionofludesch
11th Jan 2020 11:09

I couldn't follow all that but the missing component is "why" ?

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Replying to lionofludesch:
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By pop123
11th Jan 2020 16:37

Sorry for the confusing question – let me add some more detail

A contracting photographer wants to open up their own studio shop.

The profit earned, as a sole trading contractor is to be used to set up costs for the shop.

The shop is to be run as sole trader.

By having the shop run as a second sole trading business they are able to reduce their taxable profits from their contracting due to set up costs.

The expenditure for this has run over a tax year.

There is consideration now of opening this up as a ltd company instead of a sole trading business.

The contracting profits have already been reduced and tax payments made.

Would there be tax complications now if the business were opened up as a ltd company as taxes have already been paid or would it be better to keep things as a sole trader.

If there would be complications is there a suitable time where the company can be changed to an ltd company down the line if the shop becomes successful?

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Replying to pop123:
RLI
By lionofludesch
11th Jan 2020 16:46

pop123 wrote:

Sorry for the confusing question – let me add some more detail

A contracting photographer wants to open up their own studio shop.

The profit earned, as a sole trading contractor is to be used to set up costs for the shop.

The shop is to be run as sole trader.

By having the shop run as a second sole trading business they are able to reduce their taxable profits from their contracting due to set up costs.

The expenditure for this has run over a tax year.

There is consideration now of opening this up as a ltd company instead of a sole trading business.

The contracting profits have already been reduced and tax payments made.

Would there be tax complications now if the business were opened up as a ltd company as taxes have already been paid or would it be better to keep things as a sole trader.

If there would be complications is there a suitable time where the company can be changed to an ltd company down the line if the shop becomes successful?

If you form a company today, it can't have costs before it exists.

Get down to the accountants on Monday before the hole you're digging gets deeper.

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By Tax Dragon
11th Jan 2020 11:41

The tax rules are the same for everybody. But the way my tax is worked out under those rules depends absolutely on my precise circumstances. The way the tax rules will apply in the situation you refer to will similarly depend on the precise circumstances.

But you have asked the question in vague terms. Therefore none of us can know the tax position.

That's why you need to get an accountant involved. Someone you can discuss the detail with.

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Replying to Tax Dragon:
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By pop123
11th Jan 2020 16:00

Thanks for you response ,

I think I will need to discuss with some one in detail because I think I may be making the question more complicated then it actually is.

What I was trying to say if this makes any more sense is

If working as a sole trading contractor who decides to open up a second business.

Will the second business also have to be exclusively under a sole trader in order to reduce overall taxable profits of the first business due to start up costs.

If that second business was opened up as a ltd company instead can the money used from the sole trading business still be used to reduce overall taxable profits from the sole trading business?

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Replying to pop123:
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By Accountant A
11th Jan 2020 16:09

pop123 wrote:

I think I will need to discuss with some one in detail

That's the sensible thing to do. Good luck with your endeavours.

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Replying to pop123:
Psycho
By Wilson Philips
11th Jan 2020 18:30

What makes you think that you can set the expenditure of one business against the income of the other, incorporated or otherwise?

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Replying to Wilson Philips:
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By Tax Dragon
12th Jan 2020 08:11

I'd even take one step further back.

Photography is a profession. Whether there are two businesses doesn't matter - there's only one profession. A perfect illustration of the point I was making: the tax treatment depends on the facts of the case in point.

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By Wanderer
11th Jan 2020 16:48

You said this back in 2018, you really need to sort out your professional advisers:-

pop123 wrote:

Thanks for that information , I am currently trying to find someone who can give me that specific advice as its not in my accountants area of expertise.

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Replying to Wanderer:
RLI
By lionofludesch
11th Jan 2020 16:56

Wanderer wrote:

You said this back in 2018, you really need to sort out your professional advisers:-

pop123 wrote:

Thanks for that information , I am currently trying to find someone who can give me that specific advice as its not in my accountants area of expertise.

Jaysus - what sort of muppet accountant can't sort out a bloke-with-two-businesses scenario ?

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Replying to lionofludesch:
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By Accountant A
11th Jan 2020 17:12

lionofludesch wrote:

Jaysus - what sort of muppet accountant can't sort out a bloke-with-two-businesses scenario ?

An imaginary one.

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Replying to Accountant A:
RLI
By lionofludesch
11th Jan 2020 17:30

Accountant A wrote:

lionofludesch wrote:

Jaysus - what sort of muppet accountant can't sort out a bloke-with-two-businesses scenario ?

An imaginary one.

Oh, aye.

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