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    • Newuser1987
    • By Newuser1987 4th Jan 18, 12:01 PM
    • 5Posts
    • 0Thanks
    Newuser1987
    Sole trader to Ltd
    • #1
    • 4th Jan 18, 12:01 PM
    Sole trader to Ltd 4th Jan 18 at 12:01 PM
    New poster looking for some guidance on registering as a limited company.

    Of course I will be speaking to an accountant eventually but wanted to get some initial thoughts.

    I have been trading as a sole trader for a few years now and will be paying my 16/17 tax bill at the end January. Also 50% towards 17/18.

    My only apprehension from switching from sole trader to Ltd is when I need to pay tax. Currently I have been a bit bad at saving the tax when I have invoices paid due to some big events: wedding, buying a house etc. I never miss my tax payments but the lead up to my tax bills I end up using all my income towards it rather than just setting aside 40-50% all year round. However the big payments are out of the way now and I dont need access to the income as readily as before which is why it is looking like a good time to start considering the switch.

    My question is if I switch to Ltd will when I am liable to pay tax change i.e. the remaining 17/18 tax obligations up to today need to be paid straight away.

    I hope this makes some sense!
Page 1
    • 00ec25
    • By 00ec25 4th Jan 18, 7:13 PM
    • 5,800 Posts
    • 5,255 Thanks
    00ec25
    • #2
    • 4th Jan 18, 7:13 PM
    • #2
    • 4th Jan 18, 7:13 PM
    you are mixing up 2 different situations:

    a company is a separate legal entity, it is not "you". The company has its own tax liability under Corporation Tax rules and its own tax deadline: 9 months and 1 day after the end of its accounting period ("year end" or "reference date"). A company accounting period is "normally" 12 months, starting from whenever the company started, but it can be "short" or up to 18 months at most if needed in certain circumstances.

    the company must pay its Corporation Tax by that deadline or the company will be fined. the payment date for CT is therefore not tied to the April "Tax year" you are familiar with

    the company owner , ie you: will continue to be taxed on any money you receive between 6th April one year and 5th April the next year, ie the tax year dates.

    As company owner you take money out of your company on which you (personally) will pay tax in one of only 2 ways:

    1) by drawing a salary as an employee (upon which you will pay income tax under PAYE administered through a company payroll and reported each month to HMRC). You will declare those on your personal tax return as employment earnings.

    and/or

    2) by taking dividends from the available profits held by your company. Said dividends are of course declared on your personal tax return due by 31 Jan at the latest.

    the mistake you seem to be making is forgetting that for the self employed the business is you, and you are the business, so there is no distinction between the money you or the business receive, it is all taxable income. For a company the money the company earns is very distinct from the money you personally take out of your company
    Last edited by 00ec25; 04-01-2018 at 7:17 PM.
    • Newuser1987
    • By Newuser1987 4th Jan 18, 8:28 PM
    • 5 Posts
    • 0 Thanks
    Newuser1987
    • #3
    • 4th Jan 18, 8:28 PM
    • #3
    • 4th Jan 18, 8:28 PM
    you are mixing up 2 different situations:

    a company is a separate legal entity, it is not "you". The company has its own tax liability under Corporation Tax rules and its own tax deadline:
    Originally posted by 00ec25
    Thank you! Its so obvious when you put it like that.

    The whole reason why I am switching to Ltd is to remove my personally liability so I should have realised this.

    My sole trader income is nearing the VAT threshold so I assume I would also not need to register for VAT until I get near the threshold again as the company turnover would be 0 at formation.
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