Sole trader with debt to Ltd Co?

I’m currently a sole trader and would like to switch to become vat registered but I owe hmrc £

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I’m currently a sole trader and would like to switch to become vat registered but I owe HMRC around £20k and have a repayment plan. Is it possible to set up ltd co just now and do I need an accountant? I'm embarrassed to tell anyone of the £20k debt. 

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Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
19th Jun 2024 09:23

Hi PP

I would definitely recommend you hire an accountant, because mistakes can be costly. I can recommend one if you dm me.

The sole trader debt to HMRC does not prevent you from setting up the limited company, but the debt will still stand.

Don't be embarrassed. Accountants will have seen it all. A debt of £20k is peanuts compared to the size of the debts I deal with. You have been proactive, coughed up to HMRC, and put a repayment plan in place so you have done the right thing in taking steps to resolve your debt.

Have you established how/why the £20k debt accrued in the first place, and put steps in place to stop it from happening again?

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Replying to Insolvency Practitioner:
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By PinkPumpkin
19th Jun 2024 10:31

Thank you so much for taking the time to reply. We definitely know why it built up, we’re just getting used to sporadic payments and didn’t prioritise paying HMRC over other things like getting new equipment etc and it built up over 2 years. We are absolutely committed to repaying it and not looking to shift it or anything like that. Really appreciate your response!

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Replying to PinkPumpkin:
Lisa Thomas
By Lisa Thomas - Insolvency Practitioner
19th Jun 2024 10:48

You're welcome.

If you're a sole trader, who is the 'we' you are referring to?

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Replying to Insolvency Practitioner:
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By PinkPumpkin
19th Jun 2024 11:55

Spouse. Who doesn’t have anything to do with the business but is involved in spending decisions.

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By zebaa
19th Jun 2024 09:24

You need to understand that a company & you are different ‘persons’ ( for want of a better word). You will still owe £20k personally if you start a company. Yes, you do need to talk to an accountant. Don’t take the first one you ring, take time & choose carefully. Charges vary a lot, so know what you are getting - or not getting - & decide with care.

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Replying to zebaa:
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By PinkPumpkin
19th Jun 2024 10:32

Thank you so much for taking the time to reply. Sound advice on choosing accountant carefully. Really appreciate your response.

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By Duggimon
19th Jun 2024 09:34

You don't need a limited company to become VAT registered.

There are substantial tax implications beyond just VAT if you do decide to form a limited company to take over your business and you won't be able to deal with them by seeking answers anonymously online.

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DougScott
By Dougscott
19th Jun 2024 16:01

Why would you want to be VAT Registered if you don't have to be anyway?

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By PinkPumpkin
19th Jun 2024 16:11

I think you have to be when you approach around £85k. That was my thinking behind posting the question.

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DougScott
By Dougscott
19th Jun 2024 17:29

The threshold is £90,000 counting back 12 months at the end of every month. If you go above that amount at any point you have to register within a month. You don't need to be a limited company and all the extra cost and complication that brings with it. My advice is get some professional accountancy assistance if you are serious about running your business properly. An accountant should help you structure your business in the best way to suit your needs, make sure you stay the right side of the law, and hopefully save you money.

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