Conversion from sole trader to ltd company

karenv Well-KnownRegistered Posts: 114
Hi, can anyone help me with this.
I am the sole book keeper for a company that recently became incorporated. I need to work out how to deal with the change over. I realise the Ltd company becomes a brand new company, however we continue to use the non current assets of the sole trader( who has now become the director). We have not purchased them from him and he doesnt want us to as this would affect his tax position. I understand that there is a possiblility we could rent them from him, however he is reluctant to follow this course too. Any one know the best way of dealing with these assets? Can we trade them for shares in the company?


  • Poodle
    Poodle Experienced Mentor Registered Posts: 711
    Hi Karen

    Basically he can do what he wants with the fixed assets, he does not have to transfer into the company, he can allow the company to use the assets, and rent them or not as you say, but thats up to him. (but he may have an FRS 5 issue though) and I presume that this guy has taken some sort of advice?

    The first place that I would start is the OMV (open Market Value) of the fixed assets when he ceased trading as a sole trader.

    If the value is over £2,000 and he was VAT registered then he will have to pay output VAT on them, because he will be 'selling them' to himself if he has decided not to transfer them to the limited company; that could continue on with the same VAT number.

    If he was not registered for VAT then fine, ignore the previous paragraph.

    The other area to consider is that capital allowances. if the fixed assets have an OMV above their WDV for CA's, at the point of cessation of the sole trader then he could face a balancing charge for tax.

    There are tax reliefs available if he transfers all of the assets owned by the sole trader into the new company that will enable him to pick up the pool value at the start of incorporation and offset allowances from that against Corporation Tax.

    When someone transfers their soletrade to a limited company like this then there has to be a fair value placed on the business transfered and this could include goodwill, at the point of transfer.

    To bring into the books you would then just do a journal, Dr assets and Cr reserves.

    These are just a couple of areas to think about and they would have been concidered by his advisor who would have access to his total financial situation, when he made the decision to incorporate

  • peugeot
    peugeot Experienced Mentor Registered Posts: 624
    Poodle wrote: »
    Hi Karen

    To bring into the books you would then just do a journal, Dr assets and Cr reserves.


    Would it not be credit directors loan account?
  • Poodle
    Poodle Experienced Mentor Registered Posts: 711
    Would it not be credit directors loan account?

    whoops :blushing::blushing:

    Sorry Karen
  • karenv
    karenv Well-Known Registered Posts: 114
    Thanks guys
    Guess you confirmed what I was thinking. Yes the sole trader was vat registered and the value of the assets far exceeds £2000.00.
    The Accountant doing the year end work doesnt explain himself very well. He just asked my boss for a list of non current assets, then mumbled on a bit, I am told.

    I am trying to make sense of this so I can explain the reasoning to the boss.

  • Jan
    Jan Experienced Mentor Registered Posts: 654
    Is it possible to have a word with the accountant yourself? With the bosses permission obviously. You may be able to understand the "mumbling on a bit" whereas he didn't!
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