Transactions done before limited company was set up

Jon2022

Hi,

I am in the process of opening up a limited company for my eBay business. I have already bought a lot of stock using my personal bank account. When it comes to doing accounting and taxes does the fact that I had purchased stock before the company was set up cause an issue? 
Additionally, I have already made a few sales - can I include these when doing my accounts?

Many thanks

tacpot12

It complicates matters. It would have been easier to start the ltd company, and open a bank account, put your investment into the business into the company's bank account and buy the stock from there. Proceeds of sales could also have been banked immediately. 

The sales you have made are not sales made by the company. It can't sell anything if it doesn't exist. These sales mean that you have been self employed for a period and need to consider the tax that is due, but if your profits from the sales are less than £1000, then no tax is due as you have a Trading Allowance. 

The stock you have purchased, is a capital investment in the business, so you can't claim the money back BUT the company gets the money back when it sells them, and because it hasn't had to spend any money to have the stock it will make more profit in its first year, so you can expect to be able to draw more profit from the company. 

There is nothing to stop you transfering the money from the sales you have made (its your money) into the compnay as part of your investment in it, but you can't record them as 'Sales'. The money is Capital going into the company. There may be an option to loan the company some money as a Director's Loan. This allows the money to be repaid at a later date. 

I think you need to research more about running a company in order that you don't fall foul of the rules on taking dividends from it. You should probably talk to an accountant, and you may find the Small Business Toolbox channel on YouTube useful. 

Jon2022

Thank you very much for your response. Would an alternative be to register as a sole trader to account for the sales I had prior to the company being set up? Would this be a way of making things less complicated? (for context, I already have a full time job and I'm in the 40% tax bracket). 

DullGreyGuy

You only need to register as self employed if you have sales over £1,000. If you did more than this (before expenses) then yes you will have to register.

Company accounts have to be done on an accruals basis (traditional accounting) and not cash accounting whereas a self employed person can do either. You can sell the leftover goods to your company at cost or below to move them across but no such options for the previous sales but stock doesnt make it through to the P&L until its sold. On your balance sheet you've reduced your cash but added the goods as an asset. 

Jon2022

Thank you for that. OK interesting, so I can actually sell my leftover goods to the company? How do I actually go about doing that?

Also I had another thought... can I leave my newly created company 'dormant' for now and just register as a sole trader until I've sold all the stock that I have left (will take several months)? Can I do my P&L and tax returns in retrospect or is this going to cause me problems?

DullGreyGuy

Jon2022 said:

Thank you for that. OK interesting, so I can actually sell my leftover goods to the company? How do I actually go about doing that?

Also I had another thought... can I leave my newly created company 'dormant' for now and just register as a sole trader until I've sold all the stock that I have left (will take several months)? Can I do my P&L and tax returns in retrospect or is this going to cause me problems?

You log it as a sale on your self assessment and log it as purchase on your company. In general these things should be done at fair market value but that's more of a concern for tax authorities when the parent company in Bermuda are charging their subsidiary in the US $300/hr for each call centre agent or such.

Its fine to continue trading as a sole trader and only move to the LTD once you've exhausted your current supplies... just increases the chances of needing to register as a sole trader having gone over £1,000 but then too you'd have to consider the sale of stock to your company in that £1k limit.

Jon2022

Makes sense, thank you for that. I think just to simplify thing, I'll spend a few months exhausting my current supplies and then start from scratch. I'll get my business bank account and website sorted in the meantime.