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Sole Trader to Ltd Company

Sole Trader to Ltd Company

I need some advice. I was a sole trader and have now changed to a LTD company. I completed my tax return in January 2016 showing a net profit of £7,500. I did not have any assets in the company. As the net profit from the sole trader was below the £10,600, i did not have to pay any tax.

Advice, should i withdraw the profit and keep this or transfer the profit to the LTD company i.e sale the sole trader to the LTD company. I am not not sure if I should show a goodwill as I have no assets in the company or just keep the profit and withdraw form the business acocunt as profits from 2014-15 financial year keep trading as a new Ltd company.

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25th Feb 2016 12:09

You are the sole trader

There's nowhere to withdraw the money from, it's your's. You can invest it in the company if you like or spend it all on jelly beans.

Once the LTD company is making money the situation is less simple and I would suggest engaging an accountant would be in your best interest to make sure you are following all the relevant regulations.

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By JimFerd
25th Feb 2016 12:22

It sounds like you definitely need an accountant.

Trying to do Limited Company accounts with no prior experience is a recipe for disaster.

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By SHA
25th Feb 2016 12:33

Thanks for advise

Thanks for your response...I only needed to know about the profits of the sole trader.

As to the LTD company..I am aware of the requirements of a LTD company...and the tax implications of corporation tax,company formation etc..all the rules around the LTD company accounts and salaries,dividends etc....

 

The clarification to the sole trader profits is answered...thanks....

 

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25th Feb 2016 12:37

IMHO, no disrespect, but
The question about extraction of profits from SE (which is very basic) indicates that you might not be as aware of accountancy for Ltd as you might think.

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25th Feb 2016 12:40

I once looked out of a hotel window and saw a bloke take a step backwards and fall into a swimming pool. I could see it was going to happen but was completely powerless to do anything about it. 

Just saying. 

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By SHA
25th Feb 2016 19:53

I once looked out of a hotel

Tim Vane wrote:

I once looked out of a hotel window and saw a bloke take a step backwards and fall into a swimming pool. I could see it was going to happen but was completely powerless to do anything about it. 

Just saying. 

 

This is not professional advise!!!!

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By cfield
25th Feb 2016 16:36

Goodwill

With regards to goodwill, you automatically get incorporation relief (although you can elect not to have it) so no capital gains tax to worry about, even if the sole trader business was actually worth something without you.

Alternatively, you could make use of your annual CGT exemption and take the goodwill to loan account. Not as beneficial as it once was before Gideon torpedoed the tax advantages, but there are still a couple of benefits.

Firstly, it would enable you to take that money without having to call it a loan, salary, expenses, dividend or whatever else the company owes you. This effectively delays the tax bill on salary and dividends, as the retained profits have to be extracted one day.

Secondly, it effectively gives the company a base cost for the business, so if you ever sell it one day (as an asset sale rather than transferring the shares) it would reduce the chargeable gain.

As others have said though, best to consult an accountant, preferably one who knows a fair bit about tax.

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25th Feb 2016 16:57

in line with other comments

you have asked the equivalent of 'how do I change a light bulb on my VW Golf', and armed with that advice suggested that you are quite capable of an engine rebuild (presumably because you have a Haynes manual)! 

Sometimes 'consult an accountant' is just good advice and should be given serious consideration.

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25th Feb 2016 17:33

I think you'll find that the OP

is an ACCA qualified accountant.

I couldn't (possibly) imagine how the scenario of; swimming pools and (changing) vehicle light bulbs could have any relevance?

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By SHA
25th Feb 2016 19:47

Thank you Cfield - Re Goodwill

 

Thank you for your advise on the Goodwill, which my question was refering to as part of converting from sole trader to Ltd Compnay. This was very good advise and my thoughts were similar as regards to the CGT Exemption and take the goodwill to the Directors Loan Account which would have benefits. Yes I would have to call it Loan.

This is the advise I was seeking and thank you again re the goodwill answer. This was very professionally answered.

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By Brunel
26th Feb 2016 08:12

Just a thought

Unused personal allowance for Company shareholder/director?

Isn't the usual approach to put through salary to use up PA and take it to loan account? Reduces company profits for CT and preserves the wasted PA.

Is this possible now we have PAYE RTI? If possible what's the downside?

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26th Feb 2016 08:59

IT is the usual approach, but then the usual approach to companies feeling threatened to to tartan their neighbour back, and that does not always work.  It often does but not always and even when it does it does not mean it is the best option.

Directors loan accounts are great, but it is too easy to slip into using them as a personal bank account and the taxman has lots of rules about that.

Do use the personal allowance through a wage, do use the full allowance for tax free dividends (once the limit comes in,
 

Do look at all other personal costs that the company benefits from

Do look at non salary forms of remuneration

For the rest do look at directors loan but do it on a formalised basis and do repay it, be it in cash or dividends not taken out.

gybea.co.uk

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26th Feb 2016 10:03

For goodness sake

It is ADVICE, not ADVISE!

You run a 'business', know all about accountancy for a limited company and you don't know the difference between advice and advise?

Sorry, I don't believe you.

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By cfield
26th Feb 2016 11:04

Bad spelling

JCresswellTax wrote:

It is ADVICE, not ADVISE!

Glad I'm not the only one who gets infuriated by bad spelling. The one that always annoys me the most is "loosing" instead of losing. Incredible how common that one is these days. My old English teacher would have made us write it out 100 times.

It seems the internet tends to perpetuate bad spelling by constant repetition (the opposite of what my old English teacher tried to do) and the sheer weight of exposure of bad spelling to millions of people without correction. American spell-checkers are a contributory factor, as is reliance on spell-checking in general.

It's a good thing some of us are willing to point out these errors in an endeavour to reverse the trend a bit, even if it does sound a bit "preachy". It's probably a bit like Canute standing in front of the waves though; a futile gesture. It's a bit risky too, as you've only got to slip up on some obscure point of grammar (or even just miss a typo) and someone else is bound to point it out and send you to the back of the class.

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29th Feb 2016 13:40

Do you know there are some people out there who are weird and get upset over points that do not matter. Accountants deal with numbers primarily.  Lawyers worry about the words more. Both would give the same advice in this case and advise you to do the same thing.

P.s. Please do not shout on the internet it is very rude

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26th Feb 2016 10:54

time for a change...

perhaps I should have said - 'you don't appear to know what you are doing - go and get some professional advise' (sorry couldn't help that JC...is your head about to explode?)

 

Its a basic question requiring a bit of research - something I would expect any 'good' accountant to be able to do. 

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26th Feb 2016 12:02

Just for once..........

justsotax wrote:

perhaps I should have said - 'you don't appear to know what you are doing - go and get some professional advise' (sorry couldn't help that JC...is your head about to explode?)

 

Its a basic question requiring a bit of research - something I would expect any 'good' accountant to be able to do. 

I think you missed the (hidden) irony.

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26th Feb 2016 12:20

I think

I did...

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