Hi,
I am planning on changing from a sole trader to a ltd company, probably with having a year end of march.
From an accounting perspective how do I do that with respect losses from previous years and also a personal loan that I used to start the business. Currently each month I take out the repayment amount, splitting it between bank fees and initial investment payback. Is there a way to do this as a ltd company?
Thanks
Hello @MrP
The limited company would be a different legal entity from the sole trader company and as such you would need to create a new QuickFile account.
The new account would be set up with opening balances as of April.
You cannot simply turn your sole trader business into a limited company and carry on as before - effectively you will be selling the business to the new company. Any tax losses you have brought forward as a sole trader will be lost - they cannot be transferred to the new company. The new company starts from scratch on day 1.
You will need to value the business at the date of sale - what business is it and what will the company be buying? Will it effectively just be a list of customers, or will there be stock, fixed assets etc. You also need to work out if there is any goodwill. Also, what will happen to the debts - will they be cleared prior to the sale or will the new company inherit them?
I would recommend getting the advice of an accountant before you start.
In terms of a personal loan - the sole trader business is you, so you effectively just loaned yourself money. If you want to put money into the company, you can just set up a director’s loan (assuming you are going to be a director as well as a shareholder). Any money you take out of the company in repayment of this loan will have no effect on tax either for you or the company.
As a sole trader, any money in the business was yours to take as and when - you are taxed on the profits not your drawings.
As a limited company, any money you take out (apart from loan repayments) will be taxable on you personally either as salary (which can reduce the corporation tax liability of the company) or as dividend income. Dividend income comes out of after-tax profits, is payable to all shareholders in equal proportion to the number of shares they own, and can only be declared if there are enough reserves (accumulated profits) to cover the payment. The company will pay corporation tax on any profits it makes.
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