Sole trader to ltd

apple

I've recently qualified and i've just started my own accountancy business. So far I had only sole trader clients and now i am just taking on the first ltd.
My client currently is a sole trader with only cash books which was done in excel. no debtors, creditors or assets, everything was in cash trade. he has 3 employees as well, and is VAT registered.
my questions would be:

1.
From 1st April he would like his company to be set up, is it worth to follow 1st april -31 march financial year?

2. Do i need to calculate goodwill for his sole trader business and transfer it to the ltd? Also what should i do with his tools which are not assets but he will use them in his company

3.Can he keep his vat no. although the ltd wont reach the vat threshold soon?

4. what journal entries i should make if i have only a cash book?

thanks very much in advance!

reader

apple wrote: »

I've recently qualified and i've just started my own accountancy business. So far I had only sole trader clients and now i am just taking on the first ltd.
My client currently is a sole trader with only cash books which was done in excel. no debtors, creditors or assets, everything was in cash trade. he has 3 employees as well, and is VAT registered.
my questions would be:

1.
From 1st April he would like his company to be set up, is it worth to follow 1st april -31 march financial year?

2. Do i need to calculate goodwill for his sole trader business and transfer it to the ltd? Also what should i do with his tools which are not assets but he will use them in his company

3.Can he keep his vat no. although the ltd wont reach the vat threshold soon?

4. what journal entries i should make if i have only a cash book?

thanks very much in advance!

1. Companies have all types of year end, I don't think this really matters. If the company incorporates in April the year end will be 30/04/2014 (if they want a march year end they will have to incorporate in march).

2. Is there goodwill? If not, there is no need to calculate it. If there is, you should calculate it! Last two years of profit is normally a good starting point and you can confirm the valuation with HMRC by completing Form CG34 (don't forget about the capital gains tax). There is normally goodwill in a situation where you could substitute the director for someone else without losing the company's income (e.g. there probably wouldn't be goodwill if JK Rowling went from sole trade to limited).

3. Contact HMRC regarding transferring the vat number from the sole trade to limited company as a going concern.

4. If the director transfers the sole trade bank balance, say £100, into the new limited company bank account the entry is: DR Bank and CR Director's loan account.

5. When you cease the sole trade don't forget to claim any tax paid on any overlap profit (opening year rules). Also, don't forget to get your client to cancel his class 2 nic contributions and put him on the payroll at £624/month (or whatever the secondary threshold for n.i.c. is).

JodieR

1. Having a 31 March year end does keep things simple - you can have one file per year which contains all invoices, 4 vat returns, 1 payroll return, one set of accounts, one corporation tax return and one personal tax return. However, if the director's salary + grossed up dividends is likely to be around the point where it's going into higher rate tax it's sometimes better to have a different year end so that by declaring dividends at the correct times you can ensure that it's in the company year and personal tax year that you want it to be in.
Also, it's very simple to change the year end of a company to whatever you want it to be, you don't have to stick with the default 'end of the month in the year following incorporation'.

3. Yes he can keep his VAT number, when you fill in the VAT application form there's an option to use an existing registraion number, however this isn't normally the best thing to do. If you do keep the same number and you get an inspection and they find an error on a VAT return filed by the sole trader then the company will be liabile for the unpaid VAT and any associated penalties. A client of mine found out this the very hard way. Luckily it hadn't been my decision to keep the VAT number (or the one who'd made the error!). It's usually best to appy for a new number - fresh start!
If you're getting technical about it then the Ltd Company will probably have to include the sole trader's turnover figures when deciding if thye have to register for vat as it's a continuing trade, but even if they don't have to or if the trunover is below the threshold they can still apply voluntarily to register for VAT.

stevo5678

I actually think you need to be vat registered from day one. Under TOGC rules you include the previous entities turn over if it was vat registered or needed to be vat registered at the time of incorporation. If not you can choose to start a fresh.