Sole Trader and Ltd Company

[Mr D]

He’s taking out his sole trader business as drawings

Makes no difference to profit. Can take out £10 or £10k and his income remains the same, the profit of the sole trader business.

 

[Lisa 44]

Makes no difference to profit. Can take out £10 or £10k and his income remains the same, the profit of the sole trader business.

He’s taking it all out of his sole trader business as drawings and moving money into his ltd company , not as a loan but regular ( almost daily ) transfers from his sole trader business, but putting it all through as expenses even though there isn’t any as the expenses are paid from his ltd company so he can claim back the vat.

He's doing this to avoid paying tax on the profits from his sole trader business- so therefore it’s tax evasion!

 

[Mr D]

He’s taking it all out of his sole trader business as drawings and moving money into his ltd company , not as a loan but regular ( almost daily ) transfers from his sole trader business, but putting it all through as expenses even though there isn’t any as the expenses are paid from his ltd company so he can claim back the vat.

He's doing this to avoid paying tax on the profits from his sole trader business- so therefore it’s tax evasion!

His drawings aren't an expense.
What he does with the money is up to him after he takes it out. Doesn't affect his net income.

Common method of putting money into a limited company is to credit the directors loan account. Later can be taken out of the limited company tax free as its already been subject to tax previously.

 

[Lisa 44]

His drawings aren't an expense.
What he does with the money is up to him after he takes it out. Doesn't affect his net income.

Common method of putting money into a limited company is to credit the directors loan account. Later can be taken out of the limited company tax free as its already been subject to tax previously.

No but he should be paying tax as it’s regarded as a profit in a sole trader business and so is the removal of money to his ltd company, he’s not paying any tax !

He’s putting it all through as expenses, when there isn’t any to avoid paying any tax !

 

[Mr D]

No but he should be paying tax as it’s regarded as a profit in a sole trader business and so is the removal of money to his ltd company, he’s not paying any tax !

He’s putting it all through as expenses, when there isn’t any to avoid paying any tax !

The drawings don't matter. He can take £100 or £1000 out and his profit remains the same.

What he is doing afterwards with the money, whether spending it on spirits, beer, food or putting it in the limited company is up to him. Presumably he's living on some of it.

 

[SteveHa]

The drawings don't matter. He can take £100 or £1000 out and his profit remains the same.

You're missing the point. Money transferred to the company is being misrepresented in the sole trade accounts as expenses, not drawings, thereby reducing profits on paper. This is most certainly tax evasion.

 

[Lisa 44]

You're missing the point. Money transferred to the company is being misrepresented in the sole trade accounts as expenses, not drawings, thereby reducing profits on paper. This is most certainly tax evasion.

Thank you I’m glad you explained it ! He's taking out all money from his sole trader account as drawings and transferring money into his Ltd company and classing it all as expenses ( when there isn’t any ) it should all be classed as profits and therefore you pay tax the the total profits from the sole trader business.

Have I got this correct ?

 

[Newchodge]

Thank you I’m glad you explained it ! He's taking out all money from his sole trader account as drawings and transferring money into his Ltd company and classing it all as expenses ( when there isn’t any ) it should all be classed as profits and therefore you pay tax the the total profits from the sole trader business.

Have I got this correct ?

IF he is taking the money out as drawings he will be taxed on those drawings as they are his personal profit.

IF he is issuing an invoice from the ltd company to the sole trader for 'expenses' then the sole trader profit is reduced by that amount (possibly to nil) and the Ltd company income is increased by that amount.

 

[SteveHa]

IF he is taking the money out as drawings he will be taxed on those drawings as they are his personal profit.

IF he is issuing an invoice from the ltd company to the sole trader for 'expenses' then the sole trader profit is reduced by that amount (possibly to nil) and the Ltd company income is increased by that amount.

However, the corporation tax rate is lower, and there is no NI to pay. As a separate legal entity, the company will not be considered for child maintenance purposes (and even if it were, as a 40% shareholder the OP would be effectively paying herself maintenance).

 

[Mr D]

You're missing the point. Money transferred to the company is being misrepresented in the sole trade accounts as expenses, not drawings, thereby reducing profits on paper. This is most certainly tax evasion.

And being put through as drawings as an expense on the sole trader accounts?

 

[Lisa 44]

IF he is taking the money out as drawings he will be taxed on those drawings as they are his personal profit.

IF he is issuing an invoice from the ltd company to the sole trader for 'expenses' then the sole trader profit is reduced by that amount (possibly to nil) and the Ltd company income is increased by that amount.

No invoices are being issued for expenses

 

[Mr D]

No invoices are being issued for expenses

As a shareholder how would you be certain?

 

[Lisa 44]

As a shareholder how would you be certain?

No nothing ! As we are going through a very messy divorce, I’ve seen two years of bank statements for all his accounts and no invoices are being paid regularly for expenses

 

[Lisa 44]

And being put through as drawings as an expense on the sole trader accounts?

Yes drawings and transferring money is all being put through as expenses

 

[nelioneil]

I’m struggling as it is - I can’t afford it

I have only £400 a month left once I’ve paid all my bills ! I have to feed, clothe, pay school expenses for myself and 2 children plus put fuel in my car ! I have nothing left !

I believe the company itself pays for the audit, not the shareholders. As a shareholder you can demand an audit and the company cannot refuse.

 

[Lisa 44]

And being put through as drawings as an expense on the sole trader accounts?

Yes that is correct