I have a client who was a limited company but then changed to sole trader part way through the year. He is doing the same work but trading under a slighty different name. Do I just set up another set of books for the sole trader accounts. No final accounts have be done by an accountant for the Limited company, but I presume this will have to be done. Is that correct? Also assets that were used in the Ltd company are still being used etc. He was VAT registered as Ltd co then deregistered and then registered again as sole trader.
I entered his income and expenditure on spreadsheets for his limited company, but I would hopefully like to set up his sole trader accounts on sage if possible.
Any advice would be very much appreciated on what needs to be done.
As far as I am aware if a Limited Company changes to a sole trader the assets of the Limited company need to be sold to the sole trader (even though the sole trader may have been the director of the Limited Company) think it has to be sold at market value. Not quite sure why this is (it works the same if a director wants to introduce personal assets such as laptop to their Limited Company this has to be shown as being sold to the Limited Company at market value.
An accountant would probably be able to explain this in more detail and reason why this happens (it has something to do with a certain tax may be capital gains tax but not to sure on that).
Forgot to say that yes the sole trader accounts must be kept seperate to the Limited Company accounts. Also with Limited company accounts if accountant has not done them yet I am assuming that retained profit was available when dividends taken and that dividend paperwork completed (if not you may want to advise your client that an accountant should prepare accounts sooner rather later in case your client has withdrawn too much money out of the Limited company and needs to repay some of it before filing accounts companies house and paying corporation tax.
Thankyou Alison. I have advised that my client needs to arrange an accountant, but he doesn't seem to be taking any action. I will notify him again. My client has taken a small wage each week (PAYE has been done), no dividends or dividend paperwork has been completed. As far as I am aware he will make a loss on the Limited Company. I presume that he is doing everything above board by ceasing one company and starting another etc and registering again for VAT.
Yes it is right to cease VAT on one and register again for VAT (I know that if it was the other way round sole trader to Limited company you can just transfer but am sure this does not work for Limited company to sole trader).
If PAYE been done on Limited Company and no dividends that is fine.
Assuming that the Limited Company does not have any creditors when it closes it is fine. If there are debts of the Limited Company that your client does not intend to pay (especially if it is to HMRC) I am not sure what they do when someone starts trading as a sole trader as they may see if that your client has changed to a sole trader, keeping his customer base to avoid paying the debts. I know this because I looked into the risks before going from a sole trader to a Limited Company with my bookkeeping clients into Limited Company operating a few different entities and knew the risks of Limited Company if it does not work then I cannot go back to being a sole trader keeping the same clients as these transferred to Limited Comapny, and that I would have to get a job instead. Won't let this happen though but we were very cautious looking into things (took us 2 years from the idea to actually get premises and open)
Alison
-- Edited by Alison on Friday 24th of April 2009 07:50:35 AM
Thankyou Alison, that info. is very helpful. Just one last question, hopefully, I hear you say! Does my client still have to get his limited co. books to an accountant. I dont think he has taken his 2007/8 books to an accountant yet!!
Sound like your business is going very well. Good luck with it all.
With Limited Company accounts you have 9 months after year end to submit to companies house. If it is late then the penalties Companies House issue are fairly high. You don't necessarily have to have an accountant but they must be filed on time.
Business going well thanks but have to work long hours and 6 days a week.
