Switching from Sole Trader To Limited

naff123

Evening everyone

So we've just completed our first Trading year accounts and the first year in my opinion has been phenomenal in growth starting with £500 we finished with a turnover of £33,000 and Net Profit of £10000.

What I want to know is this I am considering now switching over the company to Limited instead of myself carrying all the liability should something ever go belly up.

I need to know if 1) we are ready for this step up
2) what potential pit falls there are to be had
3) I've heard some people talk about selling the sole trader business to any newly formed Limited business I might do. Because of the financial benefits to be had.

Can I have some brief indications as to these please?

bengalknights

I would speak to your accountant who you currently deal with for the best advice as they will know you and your business better than us on the boards.

Pennywise

"Selling" the sole trader business to a newly formed limited is the only option, not a choice. You have to have a mechanism whereby the assets of the sole trader business are acquired by the limited. Assets obviously includes stocks & equipment, but also the intangibles such as goodwill, intellectual property etc. Your "choice" is the valuation placed on those assets, whether they're all sold or whether some are rented, and the actual method of sale/purchase. This is why you need a decent accountant to explain your options, pros and cons. Put too high a price on the assets and fail to claim the right relief and you could end up with a high tax/nic on sole trader sale proceeds. Too low a price and you miss out on tax reliefs/benefits. Use the wrong relief or no relief at all, and you end up with potential higher tax/nic and missing out on tax reliefs/benefits in the future.