Changing from a Sole Trader to LTD after receiving BBL

PhoenixEngine

Hello
I have a question that my accountant just asked me.
I am currently a Sole Trader have been since 2016. I employ my wife and pay her a salary.
It's come to my attention that changing to a LTD Company would be much more Tax Beneficial for Me and my wife to get a salary out rather paying ourselves the maximum tax free allowance each month.
My Question is if I were to receive a BBL Loan and then change to a LTD Company same name and same VAT registration number.
Do you think there could be a clause to say that if you cease trading that the BBL will become payable in full? Even though you are continuing trade just under a LTD company with me and my wife as directors?
Can't seem to find any definitive info. I am aware that I personally will still be responsible for the BBL that is no issue. Just don't want to change to a LTD Company only to find out that now I have to pay the whole lot back in one go.
Thanks in advance for any guidance. 

gt94sss2

I would wait before doing any corporate restructuring - the government has already effectively said the tax rates/rules will be changing post Covid

tomnickolly

Hi can anyone help me
 I have been trading as a sole trader since april 2018 and on march 9th this year i registered as a limited company doing exactly as i have been doing for the last 2 years
 I applied to starling bank for a bbl and they told me i was not eligable as my company was not registered prior to march 1st 
but i am sure that i have read somewhere that i can still apply for the loan if i have proof that my new company is just a progression of my business as a sole trader and not an entirely new company please help thanks

Jeremy535897

There's nothing helpful on the FAQs page. Have you looked into a start up loan instead? See https://www.gov.uk/apply-start-up-loan

unforeseen

My thoughts are that any BBL would be repayable by you and not the new Ltd Co. Of course they may want the money repaid immediately as the entity it was lent to no longer exists.

sliphi

PhoenixEngine said:

Hello
I have a question that my accountant just asked me.
I am currently a Sole Trader have been since 2016. I employ my wife and pay her a salary.
It's come to my attention that changing to a LTD Company would be much more Tax Beneficial for Me and my wife to get a salary out rather paying ourselves the maximum tax free allowance each month.
My Question is if I were to receive a BBL Loan and then change to a LTD Company same name and same VAT registration number.
Do you think there could be a clause to say that if you cease trading that the BBL will become payable in full? Even though you are continuing trade just under a LTD company with me and my wife as directors?
Can't seem to find any definitive info. I am aware that I personally will still be responsible for the BBL that is no issue. Just don't want to change to a LTD Company only to find out that now I have to pay the whole lot back in one go.
Thanks in advance for any guidance. 

Your accountant asked you???
Really? How much will they be paying you for your advice?

Also, not sure what you mean by "rather paying ourselves the maximum tax free allowance each month.".
As a sole trader, you make profits and are taxed on ALL those profits. If you already employ your wife, then there will be litlle difference to her tax wise whether you pay her as a sole trader or a limited company.

I am worried that your accountant has not explained that to you and is now asking you questions.

Anyway, to the question:
If you have secured a BBL as a sole trader, you will have to pay it back according to the terms agreed (so nothing for the first year and no interest in that period either; the govt will pay that interest). Usually it's a six year term, but you can pay it back earlier if you wish. No penalty for early pay back and you will save having to pay the extra interest if you do

You should have been advised to have sought independent legal advice if you were in any doubt about the consequences of the loan agreement not being regulated by the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974 or any other aspect of taking out a loan.

sliphi

tomnickolly said:

Hi can anyone help me
 I have been trading as a sole trader since april 2018 and on march 9th this year i registered as a limited company doing exactly as i have been doing for the last 2 years
 I applied to starling bank for a bbl and they told me i was not eligable as my company was not registered prior to march 1st 
but i am sure that i have read somewhere that i can still apply for the loan if i have proof that my new company is just a progression of my business as a sole trader and not an entirely new company please help thanks

If the lender turns you down

If one lender turns you down, you can apply to other lenders in the scheme.

You may want to consider using a broker to find the right type of finance for your needs, or do your own research using the British Business Bank’s finance guide.

source: https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan

Grumpy_chap

I think you would have to apply for the BBL as a sole trader as the Ltd Co will not have been trading by the qualifying date.  What you do once you have the funds is then up to the business to be managed in a competent manner.  The loan will remain a personal liability but, as two linked businesses are treated as one for applying for BBL, I would think you could apply for the loan as sole trader, then lend the money to your new Ltd Co.  So long as that is all done for proper, justifiable business reasons.  If you were only doing that so the Ltd Co could default on repaying you (sole trader), then that would be fraud.