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Limited company changing trade

complete change of trade

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Hi, 

I'm sorry if this question has been asked previously but I couldn't find anything. 

We have a client who has been sole director/shareholder of a limited company for 10+ years. The company doesn't have any assets other than a computer with very little wdv remaining. Similarly, the company doesn't have any liabilities other than the client's directors loan account.  The company hasn't traded for the last 3 years (not dormant) as he was ill and then no longer wanted to go back to that particular trade but wanted to keep the company open as a just in case and carried on submitting nil VAT returns (flat rate scheme). There are no reserves in the company as these have been taken out over the years in dividends.

He has approached us this week to say that he has decided he wants the company to start trading again but with a completely different trade (the new trade will be the main and only trade so not additional to the above). He also wants to switch the company from the flat rate scheme to standard VAT. I don't see any reason why this would be an issue or he wouldn't be able to do this. Have I missed anything to say why he couldn't?

Any advice would be greatly appreciated as this is the first time I have came across this in my career. 

Thank you. 

Replies (11)

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By David Ex
12th Jan 2022 16:20

Q1. Does the new trade need to be conducted via a company?

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Replying to David Ex:
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By Account4Tax
12th Jan 2022 16:22

Preferably. It will be a large turnover and more tax efficient as a limited company rather than a sole trader.

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paddle steamer
By DJKL
12th Jan 2022 16:43

Would a newco ,killing any latent liabilities from prior trading etc ,not maybe be a better idea?

I am struggling to see why using oldco adds anything.

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Replying to DJKL:
RLI
By lionofludesch
12th Jan 2022 16:54

DJKL wrote:

Would a newco ,killing any latent liabilities from prior trading etc ,not maybe be a better idea?

I am struggling to see why using oldco adds anything.

Me neither.

He's not thinking of using losses from the old trade, is he?

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Replying to lionofludesch:
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By Account4Tax
12th Jan 2022 17:12

There isn't any losses for the previous trade, there were always profits and Corporation Tax paid.

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Replying to DJKL:
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By Account4Tax
12th Jan 2022 17:11

It was more the client wanting to use the same company name. Probably doesn't want to pay the small incorporation fee of a new company either but hasn't actually said that.

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Replying to Account4Tax:
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By paul.benny
12th Jan 2022 17:38

£8 online fee to change name of oldco
£12 online fee to register newco

Agree with others who have said that newco protects from any residual or latent liabilities. On the downside, oldco may have some residual credit-worthiness whereas newco may struggle to get credit from suppliers at first.

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Replying to paul.benny:
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By Account4Tax
13th Jan 2022 08:49

Thank you.

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By Account4Tax
13th Jan 2022 08:50

Thanks everyone for your help and advice.

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By qwer78
01st Apr 2022 11:16

You say "the company doesn't have any liabilities other than the client's directors loan account."

Does this mean that if the company made a profit in future, that this could repay the director's loan account with no dividend tax or PAYE to be paid by the director (only corporation tax on the profit)? If this is the case, would this be the benefit of re-using the same company?

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Replying to qwer78:
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By Account4Tax
01st Apr 2022 11:26

No, there is enough money in the bank account from old trade to repay the directors loan balance, the director has just never taken it out. In the end we advised the client to set up a new company for the new trade based on the previous help we were kindly provided with.

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