My sister-in-law started an online shop in April 2021 and was using personal bank accounts.
In May 2021 she formed a limited company and still used personal accounts until the end of June when she opened a business account with Starling.
In January she belatedly came to me for advice about book-keeping and year end accounts. Carts before the horse !!
I noticed her Starling account was a Sole Trader and told her it needed to be changed to Limited Company account. Starling declined her request and she has now opened a correct account with Mettle.
So prior to incorporation I will sort the sole trader activity and put the stock value into Directors Loan Account for the new company.
My query is recording activity since incorporation for the month of personal bank transactions and seven months of of Starling sole trader account transactions.
Is it acceptable/appropriate to upload statements and tag them in the Directors Loan account as she is personally responsible for them?
or
Is it acceptable/appropriate to just calculate ‘opening balances’ for chart of accounts categories?
or
Personal bank transactions in the Directors Loan account and tagged and create the Starling account as another bank in QF?
As we are not registered accountants and the query is quite specific to your sister-in-law, we would not be able to give advice on this type of query.
We recommend speaking to an accountant. If you don’t have an accountant, we have a panel of accountants to choose from, for more information, please see the following link:
@QFSteve Quite right, advice given makes that person accountable and liable. Ask advice from a paid professional.
I have edited my original post and replaced ‘advice’ with ‘opinion’
I posted on this user forum hoping that someone might have prior experience and that at a later date it might be helpful to a new member that find themselves in a similar predicament. I will also google for an answer and post a verified solution if and when found.
As an unpaid bookkeeper for my sister-in-law until I’ve got her QF file up to date and shown her how to use it, rest assured, I’ll use due diligence to ensure that any responses are lawful and appropriate before applying them.
You will definitely need to talk to an accountant about this. Converting your business to a limited company is not as straightforward as setting up the company and carrying on as before.
Effectively, the sole trader has sold her business to the limited company, which then employs her as the director.
The business should be valued at the point of sale, so sole trader accounts need to be drawn up at that date. These will need to be reported as self-employed income in the relevant tax year.
The limited company is a completely separate legal entity and will be required to submit annual accounts to Companies House and file a corporation tax return.
In essence, any transactions between the director and the company are put through a director’s loan account - but I wouldn’t upload the bank account. All you should put through are basically company expenses which she has paid out of her own pocket, but which are entirely related to the business of the limited company.
Please seek the advice of a qualified accountant before you proceed any further.
@cbstephensaca, thanks for your thoughts. To clarify, it is not converting or sold to a limited company. The only thing the Ltd co will purchase is the stock. Yes, the business income and expenditure from the personal bank account should be either recorded in the DLA or it could be excluded from the company and kept with the sole traders accounts.
Regarding the sole trader bank account I found the following on accountingweb Limited company using personal account
A lengthy discussion on various pro’s and con’s HMRC, liquidation, death of the account holder…
the short answer is:- with the sole trader bank account it is acceptable to include it in the ltd co accounting with the caveat that a legal document is drawn up stating that the account is solely for the benefit of the company and is being held in trust by the individual.
I will of course be talking to my accountant before committing to any action.
I had a similar case where a sole trader did convert his business to a Ltd co of the same name. The bank told him categorically that they were not opening new business accounts so he would have to continue using the original bank account or find another bank! We have included it in the Ltd co accounts with notes of what has taken place.
