Becoming limited from self employment

[Kebb88]

My husband has been a sole trader for the past 5 years and we are looking to grow the business. Turnover is currently £150,000+ and we are wanting to create a limited company and cease the self employment. My question is, if there are outstanding debts from the self employment (eg, VAT bill to HMRC, supplier invoices that haven't been issued yet as they are payable monthly etc), can they be paid by the limited company? We just aren't sure how it would work if for example we set up a limited company tomorrow, but are still waiting on money coming in from clients and still have outstanding debts, would this roll over into the limited company? Sorry for sounding daft but we don't use an accountant, we have an appointment with one to help us through it but we can't see him for another week yet, so just wanted the heads up!
Thanks in advance!

 

[john1989]

I haven’t got the time to do a comprehensive answer – others might.

Please don’t set up a limited company tomorrow. It was cause more harm than good. Wait until you have received some professional advice.

 

[MyAccountantOnline]

...if there are outstanding debts from the self employment (eg, VAT bill to HMRC, supplier invoices that haven't been issued yet as they are payable monthly etc), can they be paid by the limited company...

It's certainly possible in some circumstances, but I would get some advice from an accountant who has access to all relevant details.

 

[Ian J]

There are various ways that you could go forward but in order to make sure that you progress in the most tax efficient way it will be best to be guided by the accountant

 

[Percy1980]

We don't use an accountant = madness

 

[datahound]

Any new company you set up would have its own VAT reg no.

The HMRC will want the VAT due from your old business.

There is a principle in accounting called matching. The expenses against sales should be matched in the same financial period and even more so within the same organisation.

Your limited company is a completely different business from your self employed. They must be kept entirely separate and each pay their own bills.

Your suppliers will need to be told they are doing business with a new entity. They will close the account for you and open new account for ltd. Because if bill not paid they have to sue the legal buyer which is the ltd not you. In some cases they may want personal guarantee that the directors will pay any outstanding in the event of failure of the company.

Customers will also need to know they are doing business with another entity.

If you take money out of your new business to pay debts of other business it would be seen as a loan you owe to the company. You cannot borrow more from the company than it has earned. If the company has earned nothing you cannot take anything from it. You could repay this loan via a reduced salary drawing, a reduced dividend or pay back in in cash.

I have simplified this for quickness and to answer your questions.

As everyone above says, speak to your accountant.

 

[Ian J]

Any new company you set up would have its own VAT reg no.

When I transferred from sole trader to limited company HMRC transferred the same Vat number over

 

[MyAccountantOnline]

Any new company you set up would have its own VAT reg no.

....

Generally you'd transfer the VAT registration and keep the existing VAT number.

 

[datahound]

I'm surprised they are that flexible. You live and learn. Hence speak to an accountant.

 

[john1989]

Some people do like to start with a clean slate with their VAT rather than transferring the registration to the company.
Definitely worth talking to your accountant.