Phase out Sole Trader and phase in Ltd Co.

[opendoor76]

Hello,

I own a takeaway business and am thinking of incorporating a Ltd. company to run the delivery service for the takeaway.

I would like to, in time, transfer the Sole Trader assets to the Ltd. company and wind up the sole trader.

They way I see it, is this:

Sole Trader turnover £180k although year to year I just miss the Flat Rate VAT threshold of 150k, coming in at 165k.

I would like to start the Ltd. company reducing my personal sole trader liability. Over a period of time reduce the sole trader turnover to below the 150k entry requirement for the flat rate VAT scheme, enter the flat rate scheme to reduce the VAT liability, therefore transfering over more of the business to the Ltd. company.

During this time, I am not sure if I could enter the flat rate VAT scheme for the Ltd. company before it hits the 150k threshold, therefore running two companies in the flat rate scheme before transferring over all assets, docs and liability to the Ltd. company before winding up the sole trader.

Or is this just classed as a blatent tax dodge?

Not that I am trying to dodge the tax, I am just meerly trying to run both companies as efficiently as possible.

If this is a bad approach, what is the most tax efficient way to run a Ltd. delivery company for a sole trader takeaway maximising on profits and minimising on taxes?

Any help on this would be greatly appreciated as I am new to business.

Rgds

[oldeagleeye]

You really do need to talk to an accountant on this one but in general if you own a couple of business they are classed as just 1 for vat purposes = as I understand it.

The tricky bit and why you need an accountant is what is the definition of own is if the 2nd business is a limited company which is an entity in it's own right.

Again my understanding is that you are deemed to own the company if you are a major shareholder and or a director. As said. This is where only an accountant can really help you.

There may be a wife or other family member for example that could run the limited company but these are things that you need to discuss in private not an open forum.

Hope the info helps although I must say that I am a little confused as to why you want to go to all the trouble of splitting the business for 2 reasons.

1) While outsourcing deliveries albeit to your own LTD may be deductible against profits it wouldn't affect your turnover as far as vat is concerned. You would also be faced with more complicated rules as far as purchasing vehicles and running costs.

2) The flat rate vat scheme is not all it's cracked up to be anyway but especially for a business like yours. Yes it is easier to do the bookwork but you pay the flat 11% for instance on everything including cold drinks that may be part of a meal deal and there is no vat on cold drinks or food salad - dips etc.

Leaving any possible savings aside there it may surprise you to know that on a rough calculation you would end up paying almost DOUBLE the amount of vat by using the flat rate as opposed to normal accounting and that is according to HMRC own numbers. We are talking serious money then and the numbers are

Turnover Vat included £165,000 . Flat Rate Scheme @ 11% Just under £18,000.
Normal accounting. T/O £165K. Output tax £24K.

Purchases vat included £85K. Imput tax £13,000 plus all those other claimable expenses fuel - utilities etc and yes even the vat on accountants fees. Say 2K in all. Total Deductible. £15K . Deduct from output tax and you liability £9000.

That is actually DOUBLE the flat rate scheme. Says a lot about the government helping small business - doesn't it.

You want an easy life as far as vat is concerned OP. Put all your receipts and till rolls in a box every 3 months and have them delivered to your accountant by chauffeur driven Bentley. Then get the driver to take you to the Eurostar terminal and have a long weekend in a 5 star hotel in Paris.

Do that 4 times a year and your still be quid's in. In fact I make it about £5K left.

All donations to my small wine cellar for working all this out gratefully accepted.

Robert.

As said the above figures are only a rough guide as I don't know the real value of purchase's but I don't think they are far off. Anyway below is the gov.uk flat rate calculator which gives you a comparison with standard scheme too.


http://vatreadyreckoner.hmrc.gov.uk/

[elainec100@cheapaccounting]

Don't just focus on vat - look at goodwill transfer to limited company for potential tax advantage.

This is something to get some tax planning advice on.

On the Vat issue - Is the FRS scheme best for you anyway? Could you soon exceed the allowable t/o on that scheme?