Is it the right time to incorporate?

[Katy1980]

I've today incorporated, but having read various threads am now worried it was the right thing.... Here's a bit of info:

I sell jewellery online.
I'm on the flat rate VAT scheme (not sure if that's relevant!)
I'm set to make 200k turnover over the next 12 months.
My pre-tax profit is typically 32% of turnover (so appx 64k over next 12 months)
Stock to sell as sole trader to Ltd co. anywhere from 45k-60k (I need to work it out!)
Not really any assets - a laptop and that's about it!
I work from home and will continue to do so.
My year end is (awkwardly) 30th April for sole trader. The Ltd co has incorporated today (20th Aug) and I'll consider my "transfer" date to be from 1st Sept.
I will be sole director and 100% share holder of Limited company
My question: Did I do the right thing??!! :|

I have an online accountant who is setting me up as Ltd and who will do my yearly accounts and tax return, but unfortunately they did not actually look at my accounts and check it was the right time for me, which I know I am stupid for allowing to happen- so go easy on me! :(

[MyAccountantOnline]

Hi Katy

I'd go back to your accountant and ask them these questions - it really is what you are paying for.

If they've recommended and dealt with the incorporation of the business they really should also be dealing with the tax implcations of the transfer of the business too.

[David Griffiths]

There's no obvious reason why you shouldn't have incorporated, and there is likely to be a tax saving if you set things up properly. However, you clearly haven't had any advice on the transfer and what you need to do to effect the transfer properly. For example, register the limited company for VAT, open fresh bank accounts etc. The bookkeeping is also different and you have to understand the most effective way to reward yourself. Will you be the only shareholder? It might be more effective if shareholdings are split, but tax considerations are not the only ones

That's where your accountant should be helping you, as you clearly spend time thinking about things, and perhaps worrying where there is nothing to worry about.

But no you haven't committed a gross bungle! So cheer up. :)

[Williams lester]

Looking at the figures you are quoting, you really should get some advice from your accountant on the transfer of the business to a limited company. There could be a substantial tax advantage depending on the valuation of the goodwill within the ST business.

[elainec100@cheapaccounting]

I
I have an online accountant who is setting me up as Ltd and who will do my yearly accounts and tax return, but unfortunately they did not actually look at my accounts and check it was the right time for me, which I know I am stupid for allowing to happen- so go easy on me! :(

Based on what you have said limited could be a good route but some tax planning should be done for the transfer of sole trader business to limited company. Significant tax savings could arise and I would strongly urge that you talk this through with your accountant asap

[Philip Hoyle]

Have you only just engaged this accountant to form a company for you? Did they not do your past accounts and tax returns as a sole trader? Did you have an accountant in the past or did you do it yourself.

There's no problem per-se with trading through a company for the future, but there are potential issues concerning your previous sole trader accounts which really, really need to be dealt with before you move your trade to the company.

With a 30 April s/t year end, you'll end up with 16 months of profit charged to tax in 10/11 less probably a small amount of overlap relief, which at current levels of profit will push you well into higher rate tax.

Your comments re being taxed on stock suggest a lack of understanding of how you deal with opening and closing stocks in the accounts and tax return. You have been adjusting for opening and closing stock values in previous years havn't you? The sole trader accounts shouldn't be any different as to whether you incorporate or not - the closing stock will be adjusted for at the same value either way.

As mentioned above, there are opportunities for not only "selling" the goodwill to your company, effectively tax free or low (10%) tax, but the company can then get tax relief on the goodwill purchased (20% spread over several years) - so that's a massive trick that you're at risk of missing.

I'm not saying don't incorporate - I'm saying hold back until you have some proper advice about the effects of closing down the sole trader business. It's far more important you get an accountant on board who knows what they're doing re the old sole trader - to a large extent, the new company is the easier bit to deal with - if your current/new accountant is only dealing with newco, then you either need to instruct them re your past sole trade as well, or if you're not confident with them, sack them and get someone else who can give you the answers you need without you having to research them yourself.

[Katy1980]

Thanks for your replies everyone, I think it's wonderful that you are all willing to be so generous with your time and help me like this.

Phillip Hoyle I wish you were my accountant! (but I don't fancy the long drive, lol)

I'm getting the impression my accountant thinks they are just incorporating my business, and doing my yearly accounts and tax returns and has not realised I want tax advice.... (I got them through people per hour - a site where people bid for your business - and I said I'd need incorporating, yearly accounts, tax returns and "advice on dividends etc", so I probably didn't make it very clear. Durr! By the way, I made sure they had fantastic reviews I didn't just go with anyone!)

So, perhaps a communication breakdown/confusion between my accountant and I. I've emailed and explained my concerns and asked if tax advice is something she can do as efficiently as possible, so watch this space!

I'm now worried because the Ltd Co was set up on the 20th (last Friday) and the intention was to transfer over on the 1st of September, so I need to work fast at sorting the matter. Perhaps (assuming it turns out my accountant cannot give tax advice) I should arrange a meeting with a tax advisor/planner, and see them yearly to look at my accounts and advise me where necessary...?

Thanks again everyone :)

[David Griffiths]

There's no need to rush things. You don't have to transfer the trade to the company immediately it's formed - take your time to get the right advice and switch over when you are truly ready.

[Katy1980]

Ahh, that's a relief! So, if I decided to do the transfer from sole to Ltd on, lets say, the 1st of October, does that mean the Limited company's accounts start from the 1st of October (and not from the 20th of August when it was formed)?

Oooh! That's probably the most simple question, yet I don't know the answer, lol! :)

[David Griffiths]

, does that mean the Limited company's accounts start from the 1st of October (and not from the 20th of August when it was formed)?



Yes


Simple questions sometime have simple answers! :)

[Williams lester]

I got them through people per hour - a site where people bid for your business - and I said I'd need incorporating, yearly accounts, tax returns and "advice on dividends etc", so I probably didn't make it very clear. Durr! By the way, I made sure they had fantastic reviews I didn't just go with anyone!



Did you ensure that the 'accountant' is qualified to do the work, that they have experience in transfers of business and associated goodwill calculations and procedures, that they have professional indemnity insurance and that the reviews are genuine businesses and not just some of their mates 'helping out'. :redface:

[Katy1980]

Did you ensure that the 'accountant' is qualified to do the work, that they have experience in transfers of business and associated goodwill calculations and procedures, that they have professional indemnity insurance and that the reviews are genuine businesses and not just some of their mates 'helping out'. :redface:

Yes, they are qualified and the reviews can only be made by people who have literally made a transaction and paid the balance owed to the accountant through the people per hour site. They were even featured by People Per Hour as a recommended service.

I'm pretty sure it's a communication breakdown.... I thought I was being advised on the tax implications with the transfer but I am guessing the accountant hired must have thought I wanted a quote on just incorporating my business (as in just registering with companies house etc rather than giving any tax advice) and doing my annual accounts and tax returns... I've emailed them stating that I want the best possible tax efficient transfer process and requested they confirm if that's something they can do. I eagerly await a reply...! :rolleyes:

It looks like I've got to get me a financial advisor now! Any idea the best way to go about it? There's been some great people replying to threads on here, but most are a million miles away... :(

[Alpha]

It looks like I've got to get me a financial advisor now! Any idea the best way to go about it? There's been some great people replying to threads on here, but most are a million miles away... :(

Well I suppose the first thing would be to tell us where you are based as 'a million miles' from everywhere isn't helpful and cannot get it from your website as its being redeveloped:D