Karenclarko wrote:

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Hi all

My partner is currently a Sole Trader and his business has been running since June 2011, I am his company secretary. He is an Electrician.

We are looking to start up a limited company as would like to become a facilities company offering other services in addition to the electrical installations. Limited Company status is definitely the way to go for us but I have a few queries and I am hoping someone can help.

My partner will be the sole Director and Shareholder of the new Ltd company. 

Can anyone help me to answer the following:

1. My partner has assets from the existing company (A van, office equipment etc, and tools to carry out the work) which we would like to be transferred to the new Ltd company. How do we go about this? How should the assets be valued, and are they sold to the new company in exchange for shares? How does it work? 
2. On the Companies House registration application it says about the number of shares and their value - could this just be 1 x £1.00 or would it need to account for the assets being transferred to the Ltd company? There will be no other shareholders. Does the share value affect the amount of dividends that can be taken and how often?
3. Are there restrictions on withdrawing dividends from the Ltd company and if so what are they (I know it can be only done on profit). My partner will continue to work for the company as an electrician so he will be on PAYE. Am I right in saying he will need to inform HMRC that he is no longer self employed? I have read that as a director it would be more tax efficient to take a very minimal salary by BACS and then withdraw dividends - has anyone got advice on this please? 
4. The current business is VAT registered - should we wait for a certain time to become incorporated or can it be done at any time? Will the VAT returns continued to be filed as normal?
5. How is corporation tax calculated?

 

Some general guidance on setting up the LTD company would also be much appreciated, things to consider etc. I am posting on here as first point of call.

Thanks in advance 

Karen

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 Hi Karen,

Q1 - Have you got an accountant? If not - I would advise getting one so they can go through all the options and help you with this (particularly in relation to your first question - as there might be some scope for some tax savings on incorporation, goodwill, various tax "elections" that you might want to make etc... but also some restrictions, eg if the goodwill is "personal" to your husband).  You don't necessarily have to exchange assets for shares.  There are various ways of valuing a sole trade, which in your case, may involve valuing the goodwill, not just the value of the assets.

Q2 - is partly tied to the answer to question 1, in theory, there is nothing wrong with one share at £1.  Although, if you are both going to be shareholders, you would possibly want to issure more than one share. 

Q3 - Dividends need to come from post-tax profits & reserves.  You need to make sure you have all the dividend paperwork in order (fairly straightforward, if you keep on top of it all).  You can inform HMRC and cancel any class 2 NIC payments  (but the chances are, he will still have to complete a self-assessment tax return)

Q4 - You can apply to transfer the VAT registration from the sole trade to the limited company, at a specified date.

Q5 - How Corporation Tax is calculated could (and does) fill several books, but have a read here to give you an overview - http://www.hmrc.gov.uk/ct/getting-started/intro.htm 

Every year you need to send in accounts and an annual return (the latter costs £14 if done online) to Companies House and a corporation tax return to HMRC.  You will probably need to register for a payroll scheme.  You also need to let your customers and suppliers know that you are incorporating, and transfer any contracts from the sole trade to the ltd co.  Change your invoices, headed paper, website (if you have one) etc.. etc...

You might also want to consider splitting the shares between your husband and yourself, for a better tax saving.

There is more paperwork and "compliance" to running a limited company than a sole trade, so you are right to do your research.  Hopefully, the above has given you a starter - but feel free to give me a ring, if you want a friendly chat.

Louise