Moving self employed earnings to Ltd. Business

weaverweb

I have been running my own business for the past year (self employed), and have decided to make the move to setting up the business as private limited company.

Is it possible to move my earnings for this financial year to the limited company, as I do not really want to pay income tax for the amount I have earned this year and would much rather pay myself a reasonable amount. And then leave the rest of the earnings with the company in the company account, and then pay corporation tax on that.

I am still in the process of finding an accountant and this is my biggest question.
Am I allowed to do this? Any feedback would be greatly appreciated.

Thanks
J Weaver.

chrismac1

The limited company exists only when it is incorporated. Until that date it cannot have income or expenses as it has no existence. Also, if you are raising sales invoices as a limited company you are required to invoice in the company name and include other details on your invoices by law. Likewise, any website you have is required to show your company details. So in my view any decent accountant is not going to indulge in income shifting on the lines you suggest. However, I there are things you can legitimately do to reduce your final profits as a sole trader without wholesale re-inventing of transactions which have already happened. Providing you recognise the extra responsibilities of being "limited" you should incorporate as soon as possible.

It sounds like you have a profitable business, and will therefore make a decent saving on NI going forward. You may be able to sell assets to your company, you may also be able to create goodwill on incorporation. Not every business can justify this and I recommend that any valuation above £20k is professionally valued. Goodwill can be written off as a business expense, hence in the case of a decently profitable and well-established business it is the goodwill creation and not the NI saving which is the main benefit of incorpation - though this in turn can create an extra Capital gains Tax bill as and when you sell all or part of the company because receipts from disposal of the intangible asset are taxable.