Should I/Is it too late to setup ltd company?

mrkat · 2 October 2019 at 8:57AM

My wife and I have been running a business since June 2018 and we were about to setup as a partnership (before the October 5th deadline for registering for self assessment). I'm wondering now if there's a different way to go about it as I've read that a limited company is much better than a partnership in terms of taxes. Can anyone tell me if this would even be an option for us or do you first have to register a ltd company before doing any trading?

A bit about us:
Around £12k in turnover for the 18/19 tax year
Around £27k Apr-Oct so far for this tax year
Both working full time on the business but no profit/wages yet (though expect to break even in a couple months)
Work from home office
Share a car which is used for business

We share everything, don't have any trust issues and have been focusing so much on growing the business that we've let this side of things slack, just knowing that we had this Oct 5th deadline to register the partnership.

We have a business bank account under the business name and my name (but not hers) and we both 'share' each others bank accounts/cards as if they were joint accounts but don't actually have a joint account anymore since N&P closed down and shut our joint account.

Any advice on where we should go from here would be greatly appreciated. Thanks!

Pennywise · 2 October 2019 at 9:59AM

You do need the limited company to have been set up before you can trade through it. It's a separate legal entity so it's impossible to have traded through it before you incorporated it.

So, whatever you do, you ARE a sole trader/partnership by default at the moment and that will continue until you set up a limited company and formally transfer/sell the business/assets to it.

I'd strongly suggest you get an accountant on board before you convert it to a limited company as there are some tax-traps you can fall into if you do it wrong, which can cost you money. Whilst it is possible to DIY tax etc as a sole trader/partnership, most people would struggle to try to do it properly as a limited company.

nmn · 2 October 2019 at 10:09AM

Pennywise wrote: »

I'd strongly suggest you get an accountant on board before you convert it to a limited company as there are some tax-traps you can fall into if you do it wrong, which can cost you money.

This is especially true if you want to be personally tax efficient; but do it ASAP before you start generating any profit!

seatbeltnoob · 2 October 2019 at 10:57AM

Pennywise wrote: »

You do need the limited company to have been set up before you can trade through it. It's a separate legal entity so it's impossible to have traded through it before you incorporated it.

Just set up limited company snd start trading through it effective immediately since it is incorporated.

Its never too late and accountant can assist after the fact with regards to asset transfers etc.

Its a small business, the issues arent going to be rocket science and theres no need ti make op panic over it by using words like tax trap.

You can set up a limited company online, if you dont want to have your home addrress on companies house you can use a registered address servuce to forward your mail.

You can decide on your share structure on setuo, i presume its 50:50.

In theory you can trade from moment of incorporation but in practice you cant until you have opened your company bank account. There was a 3 week wait forcmy barclays bank account through my local branch. I rang around and drove 15 miles to the nearest branch that had an appointment available for me to open an account.

You havent dont anything "WRONG", its very common to do business via self employment route and then set up a ltd when the business looks like it has potential

The only thing unusual is that youre a partnership, i dont know how the self employed accounts will be treated prior to incorporation. How depreciation of assets will be handled.

Mistral001 · 2 October 2019 at 11:42AM

Many if not most people who set up a business will start as a sole trader and many of them will at a later date form a Ltd Company. So nothing at all unusual about that.

BTW, since you are married, you are in a partnership already, although one of you will have to be the named sole trader. The other one can be an employee if they are involved with the business. Note the "sole" in sole trader refers to one person being responsible for all financial responsibilities of the business. A sole trader business can have an unlimited number of employees.

dancing_star · 5 October 2019 at 3:51PM

Its a small business, the issues arent going to be rocket science and theres no need ti make op panic over it by using words like tax trap.

However, starting to trade through a limited company part way through a tax year, depending on plans for extraction of profit from the company, could land them with higher tax bills in 19/20

I've not even looked at the numbers, but I would say take advice from a chartered accountant regarding the timing if you do incorporate. They will take your tax profiles into account to give you the best advice.

seatbeltnoob · 10 October 2019 at 9:21AM

dancing_star wrote: »

However, starting to trade through a limited company part way through a tax year, depending on plans for extraction of profit from the company, could land them with higher tax bills in 19/20

I've not even looked at the numbers, but I would say take advice from a chartered accountant regarding the timing if you do incorporate. They will take your tax profiles into account to give you the best advice.

No, it's all pro-rated, it doesnt work like that at all. The calculations will factor everything in. You income from self employment and PAYE through limited company will be totted up in your self assessment tax returns. If you overpaid, you'll be refunded, if you underpaid you'll receive a tax bill.

You COULD end up paying less national insurance by incorporating midway through as NIC for directors are deferred until later on in the year*. AFAIK you cant get refunds on overpayment of national insurance like you do with income tax. Key word being could, as I am not an accountant.

*https://www.gov.uk/employee-directors

Savvy_Sue · 10 October 2019 at 7:03PM

seatbeltnoob wrote: »

Key word being could, as I am not an accountant.

Well, even if you WERE an accountant, the key word is 'could' because the OP needs someone to go through THEIR business, THEIR accounts, THEIR needs and expectations, in a way which just isn't possible on a forum ...

I'm not an accountant either ...

seatbeltnoob · 12 October 2019 at 3:32PM

Op could post on accountingweb and still get the same advice, this is general advice about incorporation etc. Not how much tax do I owe?

00ec25 · 12 October 2019 at 5:23PM

seatbeltnoob wrote: »

Not how much tax do I owe?

on the info provided that is impossible to answer since the profits of the partnership are un-quantifiable without a full costing

given the modest income levels mentioned, and suggestion of zero or negative profits, running through a company will just initially create further losses due to the extra costs of so doing.
Those may be useful in the future, but again that requires an awful lot more personal info to be provided upon which to do a comparison that would be of any decision making use.

Should I/Is it too late to setup ltd company?

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