Moving from Sole Trader to Ltd Company - VAT Status

Discussion in 'Accounts & Finance' started by OasisGardening, Nov 27, 2010.

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  1. OasisGardening

    OasisGardening UKBF Newcomer

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    Hi

    I am currently a sole trader who is moving to a Ltd Company.

    As a sole trader I have been operating just under the VAT registration threshold, but with growing turnover would have needed to have become VAT registered within the next couple of months.

    Moving to a Ltd Company, will the turnover as a sole trader prior to incorporation need to be taken into account with the turnover of the Ltd company & I therefore still need to register the company for VAT.

    Or

    As the Ltd company is a separate legal entity, does the company start with a blank sheet of paper & I therefore don't need to register for VAT for a few months i.e until turnover within the Ltd company is approaching the VAT threshold?

    Thanks
     
    Posted: Nov 27, 2010 By: OasisGardening Member since: Nov 18, 2010
    #1
  2. mr. mischief

    mr. mischief UKBF Regular

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    There is no blank sheet of paper. The good news is that if you register as a sole trader, you can carry the same VAT number over into the limited company which at least saves all the hassle of doing it twice.
     
    Posted: Nov 28, 2010 By: mr. mischief Member since: Sep 2, 2009
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  3. David Griffiths

    David Griffiths UKBF Legend

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    I don't believe that to be correct. I believe that you only have to count turnover of a previous business if the previous business was or was required to be VAT Registered. If it wasn't required to be VAT registered then you don't count the turnover.

    HMRC guidance
     
    Posted: Nov 28, 2010 By: David Griffiths Member since: Jun 21, 2008
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  4. DFL

    DFL UKBF Legend

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    As a limited company you are a seperate legal entity from then sole trade and therefore you start your VAT calculations from scratch, meaning there is no need to register for VAT yet.

    This contradicts the post above so would be interested to hear why MM feels otherwise?
     
    Posted: Nov 28, 2010 By: DFL Member since: Aug 21, 2007
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  5. Bob

    Bob UKBF Legend

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    The turnover of the sole trader only has to be taken into account if it "was, or was required to be, VAT registered". HMRC's emphasis on "or was required to be".

    You need to make sure that you didn't slip up on your calculations as a sole trader and inadvertently exceed the registration threshold as you would then have been required to be registered even if you failed so to do i.e. the limited company doesn't wipe the slate clean and the previous turnover could be considered at an inspection but only to check that you had not failed to register as a sole trader.
     
    Posted: Nov 28, 2010 By: Bob Member since: Jul 24, 2009
    #5
  6. talkinpeace

    talkinpeace UKBF Big Shot

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    Oasis,
    delighted to see you asking here after the good years on the ebay boards
    I'll admit, sunday afternoon I'm half cut
    but come Monday with the others who are far more experienced than I, you are in the right place
     
    Posted: Nov 28, 2010 By: talkinpeace Member since: Jan 3, 2009
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  7. OasisGardening

    OasisGardening UKBF Newcomer

    62 0
    Hello - nice to see you here too :)

    I'm only just starting my wine drinking - have to keep a clear head on Sunday nights as its my big night for packing & wrapping - hate to send the wrong thing to the wrong person :)
     
    Posted: Nov 28, 2010 By: OasisGardening Member since: Nov 18, 2010
    #7
  8. RAL

    RAL UKBF Big Shot

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    This was discussed here
     
    Posted: Nov 29, 2010 By: RAL Member since: Aug 31, 2008
    #8
    • Thanks Thanks x 1
  9. mr. mischief

    mr. mischief UKBF Regular

    238 58
    I've been off snowballing & sledging yesterday and then seeing clients today. The issues RAL has raised in the referenced post are what I had in mind when I made my initial post, but I admit it's not as clear cut as saying there is no blank sheet of paper.

    Overall, if you were a client I'd advise you to go ahead as planned, but make you aware of the risks of being aggregated for VAT purposes. I'd want to have noted all the commercial reasons for "going limited" (other than NI and tax savings) so I was ready and waiting with the appeal in the event of such a ruling.

    Which is exactly where I am at with a client who formed a company in June. They wanted to achieve limited liability in one part of their business which employs about 12 staff in an area where public liability claims are a very real issue. In my view that is a very strong commercial case for saying that being below the VAT limit is a mere by product of the formation of the new company, albeit a welcome by product.
     
    Last edited: Nov 29, 2010
    Posted: Nov 29, 2010 By: mr. mischief Member since: Sep 2, 2009
    #9
  10. Marie Stein

    Marie Stein UKBF Contributor

    42 11
    It's always been my understanding that if you take over a business as a going concern, then you have to include the turnover of that business in the turnover limit for VAT registration purposes. I can't recall the legal reference but here http://www.hmrc.gov.uk/vat/start/register/takeovers.htm#1 is the link to the information on the HMRC website.

    That means that the turnover of the sole proprietor has to be included in the company's turnover when establishing when the company has to be registered for VAT.
    Marie

     
    Last edited by a moderator: Dec 1, 2010
    Posted: Nov 30, 2010 By: Marie Stein Member since: May 29, 2009
    #10
  11. David Griffiths

    David Griffiths UKBF Legend

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    That seems, if I understand you correctly, to be at variance with the position in this post. Has something changed?
     
    Posted: Nov 30, 2010 By: David Griffiths Member since: Jun 21, 2008
    #11
  12. OasisGardening

    OasisGardening UKBF Newcomer

    62 0
    Thanks to everyone for their posts / replies on this. I thought I'd update everyone on how it has been resolved.

    I have visited a local accountant and he has advised that should I move the business to a Ltd company, I will be starting with a blank sheet of paper for turnover / VAT threshold purposes & I will not have to register for VAT until I am closer to the threshold within the new business.

    However, he has also advised that rather than set up as a limited company, it will be more cost effective for me to set up the business as a partnership with my girlfriend.

    His view is that by doing so I won't have all the extra admin & costs that go with running a limited company, I can offset losses in the business against the tax she pays through her PAYE and, I will still have the benefit of starting with a blank sheet of paper for VAT threshold purposes as through it were the limited company.
     
    Posted: Jan 20, 2011 By: OasisGardening Member since: Nov 18, 2010
    #12
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