Moving from sole trader to Ltd + VAT reg
Discussion
Hi folks, looking for a bit of guidance from people who have gone through a similar process.
I work as a sole trader right now, have done consistently for a number of years. I’m at the level where I’ll be paying 41% tax in Scotland so planning over the next years to look at going limited and VAT reg - if the thresholds stay at the level they are right now I can see inflation taking me to the automatic VAT reg level. General tax efficiency, the more legitimate look being ltd and vat reg brings and ability to run a commercial vehicle through the business all appeal. Most of my work is B2B so not worried about the extra 20% hitting demand.
But what costs should I expect to rise and take into consideration?
At the moment I’ve used personal credit cards and finance for business borrowing with 0% rates, so that’ll vanish, but shouldn’t cause me major problems. I pay my accountant a simple fee for filing a straightforward SA. I use a personal account so don’t pay for banking.
I anticipate I’ll need to get a solution for CT, VAT and RTI so that’ll cost a monthly fee, plus business banking, but will my insurance get more expensive because I’ve got Ltd at the end? Are there any unexpected costs that took you by surprise when you went limited? Is it worth staying as a sole trader until I’m forced by inflation to go VAT reg? Is insuring a car owned by a business far more expensive? Is it straightforward to transfer all assets over to the business? Apologies if these are daft questions, just want to go in both eyes open!
I work as a sole trader right now, have done consistently for a number of years. I’m at the level where I’ll be paying 41% tax in Scotland so planning over the next years to look at going limited and VAT reg - if the thresholds stay at the level they are right now I can see inflation taking me to the automatic VAT reg level. General tax efficiency, the more legitimate look being ltd and vat reg brings and ability to run a commercial vehicle through the business all appeal. Most of my work is B2B so not worried about the extra 20% hitting demand.
But what costs should I expect to rise and take into consideration?
At the moment I’ve used personal credit cards and finance for business borrowing with 0% rates, so that’ll vanish, but shouldn’t cause me major problems. I pay my accountant a simple fee for filing a straightforward SA. I use a personal account so don’t pay for banking.
I anticipate I’ll need to get a solution for CT, VAT and RTI so that’ll cost a monthly fee, plus business banking, but will my insurance get more expensive because I’ve got Ltd at the end? Are there any unexpected costs that took you by surprise when you went limited? Is it worth staying as a sole trader until I’m forced by inflation to go VAT reg? Is insuring a car owned by a business far more expensive? Is it straightforward to transfer all assets over to the business? Apologies if these are daft questions, just want to go in both eyes open!
There are two separate things here.
Incorporate - yes either for tax reasons, which is where you seem to be, or for limited liability reasons if you think you need them, or for image reasons (might be significant depending on your market). If none apply, no need to; keep it simple.
VAT - if you turnover more than the threshold you have no choice. If not, then (a) if your customers are VAT-registered, you have nothing to lose and much to gain. (b) If they're not, consider the effect that +20% will have on your sales.
Note that if you incorporate you're creating a legal entity of which you'll be a director and an employee. Directorships carry much more responsibility than sole traders.
I never incorporated because none of reasons I gave above applied. But I did register for VAT voluntarily because my customers were also VAT registered (so they didn't give a monkeys about +20% because they could claim it back) and because I bought in lots of stuff so being able to reclaim VAT made a massive difference to profitability. If in doubt, run the numbers
Incorporate - yes either for tax reasons, which is where you seem to be, or for limited liability reasons if you think you need them, or for image reasons (might be significant depending on your market). If none apply, no need to; keep it simple.
VAT - if you turnover more than the threshold you have no choice. If not, then (a) if your customers are VAT-registered, you have nothing to lose and much to gain. (b) If they're not, consider the effect that +20% will have on your sales.
Note that if you incorporate you're creating a legal entity of which you'll be a director and an employee. Directorships carry much more responsibility than sole traders.
I never incorporated because none of reasons I gave above applied. But I did register for VAT voluntarily because my customers were also VAT registered (so they didn't give a monkeys about +20% because they could claim it back) and because I bought in lots of stuff so being able to reclaim VAT made a massive difference to profitability. If in doubt, run the numbers
How do you know not all accountants forget to mention that money injected into a company by a director does not constitute a loan from the director to the company?
If it isn’t shown as money owed back to the director, in what other way might they account for this cash injection into the company bank account?
If it isn’t shown as money owed back to the director, in what other way might they account for this cash injection into the company bank account?
codenamecueball said:
I use a personal account so don’t pay for banking.
You can't do that with a limited company. You'll need a company bank account, otherwise you're wasting your time incorporating.Accountancy fees will principally be affected by how much of the work you do yourself. Keep all the paperwork neatly filed and input everything to Quickbooks - fees should be very low. Chuck all your papers in a bag and throw it at the accountant once a year - you'll get a very different answer.
DSLiverpool said:
One crucial thing is when you transfer cash from being a sole trader into your new LTD make sure it’s classed as a loan from you to the company.
Depends how credible you want your company to look. A company with £100k of share capital looks a whole lot more serious than one with £2 share capital.DSLiverpool said:
One crucial thing is when you transfer cash from being a sole trader into your new LTD make sure it’s classed as a loan from you to the company.
It’s incredible not all accoubtants mention this.
Even more crucial is stuff like property or goodwill and any CGT on transfer.It’s incredible not all accoubtants mention this.
Small point.
If you like to guard your privacy, make sure that you incorporate using (eg.) your accountants address.
Years ago, home addresses were normally used, when specific business premises did not apply.
There are many prominent people who now show an accountant's address, but the older section of their filing history still discloses their home address.
.........................................
An intriguing aspect.
When we puchase online from Amazon, we see the Company registered address is in Luxembourg.
The miniscule number of employees at their Luxembourg premises, must do a magnificent job sending out millions of parcels. -
Perhaps an idea there for you, regarding where to have the domiciled residence, for your new limited company.
There must be a reason that they have chosen Luxembourg. -
wink, wink.I hear Dublin can be fiscally attractive too.
Eric Mc said:
How do you know not all accountants forget to mention that money injected into a company by a director does not constitute a loan from the director to the company?
If it isn’t shown as money owed back to the director, in what other way might they account for this cash injection into the company bank account?
Because one didn’t mention it to me Eric - we got it sorted in the end though.If it isn’t shown as money owed back to the director, in what other way might they account for this cash injection into the company bank account?
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