Hi
A potential client has been operating as a sole trader for a few months and a major client of theirs pushed them into becoming a limited company.
I believe (I'm still investigating) that at incorporation the client was a service provider but bought a car (via a loan) (P11d issue...).
Right now they've approached me to do their Self Assessment but want me to do their Limited Company accounts when they are due. I could say no as I'm happy enough with the clients I already have.
However... out of interest...
How would you account for this? I'm interested in how you'd value the business (literally trading for 6 months and then becoming limited). Would Net Book Value be the way forward?
What would be the opening entries in the limited company books be baring in mind there's a car and a loan. My query is whether the business owns the car or the client personally (this is a question to ask). If that is the case, i believe the client is paying for the loan via company funds as they believe they bought the car. I've not even viewed any numbers yet to know if there's any goodwill and thus any potential Capital Gains. As it's a one man band changing to limited would there be any goodwill?
The potential new client has been withdrawing cash from the business (no payroll has been set up) so I'm curious as to whether withdrawals to date would be dividends or against any potential Director Loan account.
So I would like you to let me know (with a few journal examples) your thoughts. I'm thinking i might say no.
Thank you
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Replies (5)
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I wouldn't put a value on a one man band service business.
Does the company have more than one client? The first thing that comes to my mind here is IR35.
if you are not familiar with this type of work then don't do it. Its a big step up from SA to ltd co's, its like going from primary school straight into your A-levels.
Sounds like they are making a hash of it to me., its not something you can just muddle through.
The ownership of the car will be a matter of fact.
Goodwill may or may not exist.
If it does it may be crystallised on transfer, it may qualify to be rolled over against the base cost of the shares which is an automatic provision if the criteria is met.
The question of what the cash takings are is a moot point. What does the client think they are? Whole long ranging discusions on that point.
What the client needs is rapid intervention from an experienced accountant to put them on the right tracks and ensure that the ongoing position is sound, and the past is rectified.
I deal with Self Assessment and established limited companies so I'm aware of how to treat their on going business but I've never dealt with the transition.
It turns out the car was bought after the business was incorporated.
The reason in being hesitant to say no straight away is that the potential client is the son of an existing client.