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Sole trader to Ltd with BBL

Can I incorporate with a BBL?

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I asked a question a few months ago about buying out my partner using a BBL. It was a traditional partnership and I had a capital balance to withdraw, but needed the BBL to produce liquid cash as the business had very little liquid assets. This has now happened and I am now a sole trader. 

I'd like to become a limited company. Nothing dodgy. Just want to save tax as I don't need to take out all the profit each year. Can I do this with a BBL attached? I still intend to repay the loan. But wanted to check that it was okay and that they (HMRC/BBB etc) won't deem that the business with the loan has closed and request repayment immediately? It's the same business, just incorporated.

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RLI
By lionofludesch
28th Mar 2021 07:50

What does the loan agreement say?

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Replying to lionofludesch:
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By Lee11_1989
28th Mar 2021 08:19

I have a BBL and couldn't find anything about this in the terms.

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ALISK
By atleastisoundknowledgable...
28th Mar 2021 07:56

I’d imagine the BBL stays with you personally. Even if they would deem the business to have closed, they’re not very likely to check as long as you keep repayments up.

Edit: wouldn’t the BBL be in joint names with you and your ex-partner?

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
28th Mar 2021 08:19

atleastisoundknowledgable... wrote:

Edit: wouldn’t the BBL be in joint names with you and your ex-partner?

Doubt it. Why would the ex-partner raise a loan to buy himself out?

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Replying to lionofludesch:
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By CluelessGoon
28th Mar 2021 08:28

Yes, the BBL is in joint names because at the time of applying, we were still a partnership and our bank account was obviously in joint names. My partner accepted this as he trusts me to repay the loan, but we also had a contract drawn up to similar affect.

I don't expect to be to be able to transfer the loan to the limited company. Just wanted to check that incorporating wouldn't somehow invalidate the loan itself. Like I said, I fully intend to repay it in full. Surely I'd still be the same business as it'd be transferred to the limited company as a going concern.

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Replying to CluelessGoon:
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By SXGuy
28th Mar 2021 08:45

No.

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By CluelessGoon
28th Mar 2021 10:27

No, it won't be a problem or no I can't do it?

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Replying to lionofludesch:
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By tom123
28th Mar 2021 08:30

Conversely, though, why would a newly formed S/T business qualify for a BBL?

Edit - just seen earlier responses

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Replying to lionofludesch:
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By Paul Crowley
28th Mar 2021 18:14

Business loan from the partnership bankers to the partnership current account would be my guess
Joint and several on date loan made

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By SXGuy
28th Mar 2021 08:44

Shame you didn't ask this question before applying for a bbl to buy your partner out.

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Replying to SXGuy:
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By CluelessGoon
28th Mar 2021 09:50

I know. Hindsight is a great thing. It's only since becoming a sole trader, I've realised that I'm now going to be significantly into higher rates tax, so a limited company seems like the best way forward.

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Replying to CluelessGoon:
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By Hugo Fair
28th Mar 2021 12:22

Well the good news is that it sounds like you're going to be generating significant profits ... so you'll be able to afford to re-pay the BBL quicker (and can then open your Ltd business free of this concern).

And I wouldn't worry about hindsight (which is an over-rated commodity) ... the BBL might not have been the best idea, but it got you what you wanted without immediate cost/risk - and you always have to pay for that scenario eventually!

There are of course multiple other possible routes, but they all come with added complications and risks - so should only be considered via formal advice from your accountant.

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By Paul Crowley
28th Mar 2021 18:25

Company may be temporarily better for cash flow and avoiding MTD ITSA
But NI on self employment stops at a limit
7.5% dividend tax has no limit
Higher profit company (exceeding £50,000) also has a tax rate on 26% coming in two years time.
Get an accountant to check the claimed tax saving. You may find there is more tax to pay, but you can pay it later

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Replying to Paul Crowley:
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By CluelessGoon
28th Mar 2021 19:50

Appreciate the comment. I don't intend to dividend more than £40k pa on an expected profit of £70k, so that's where the tax saving comes in. I can let the funds build as a reserve for the future. I am aware of the corporation tax increase though, thank you.

If I happily accept that the loan will remain in my own name and I'll be liable, but proceed to incorporate, do you see an issue? Like I said, I fully intend to keep up with repayments.

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Replying to CluelessGoon:
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By Paul Crowley
28th Mar 2021 21:26

It is now just a personal liability.
Banks are not really concerned if the repayments are made

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Replying to CluelessGoon:
Hallerud at Easter
By DJKL
28th Mar 2021 22:32

At £70k profits you would have anyway been within the taper marginal rates for companies from April 2023 (if they go through with the announced increase) , and some pension contributions could certainly take the sting out of some of the higher rate you will likely be exposed to as a sole trader, so not that convinced incorporation is that pressing anyway. (especially if compliance costs are higher due to incorporation.)

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