Sole trader to Ltd company mid trading year - The Book-keepers Forum (UK)

Suffolker · Senior Member

Sole trader to Ltd company mid trading year

gbm · Guru

Hi Suffolker,

The difficulty used to be the Sage year end process, as it was very inflexible - if the first year end was 31 December, then every year end onwards would be 31 December. I'm not sure if that's changed. Depending upon the date of incorporation, the volume of transcations, and the Sage set up (i.e. if you have multi company), the simpler option would be to have two data sets - one for the sole trader and a new one for the limited company. That way, everything is kept separate.

Alternatively, if you are really efficient and controlled, you could try running the full year through and then splitting the transactions and balances at the end of the year between sole trader and company, although I would warn against it as the potential for problems could be huge!

BudgetB · Guru

I would recommend a second set of data files for the Ltd Co, trying to do it all following on will go wrong!

Peasie · Expert

I'm only at level II in my ICB course and learning level III and haven't got to Limited Companies yet - but I would have thought the Limited Company was a completely separate entity and nothing to do with the sole trader.

BudgetB · Guru

Peasie wrote:

I'm only at level II in my ICB course and learning level III and haven't got to Limited Companies yet - but I would have thought the Limited Company was a completely separate entity and nothing to do with the sole trader.

Which is why it would be entirely better to separate it all out to avoid confusion.

HendyPhilhendy · Guru

Its a separate entity but not unusual to follow on with the same accounting system. Just need to process the closing journals at the right time.

I do however agree that a new dataset gives a much cleaner break and is often an opportunity to tidy up the bookkeeping as well.

Suffolker · Senior Member

Thanks for your replies everyone. I'll create a seperate file for the ltd. So I'd do the year end on the sage, run a brought forward trial balance report and then enter those figures on the new file, in a journal as the opening balances? I don't actually know the date he changed to a ltd company yet, the accountant and client didn't bother to tell me! Asked the client in the end so he'll be emailing me the date. I'm hoping it's the 1st of a month because would be easier for the Vat, even though I've just done a vat return so will have to re-enter those transactions to the new file, luckily there's only about 60 odd

semsley · Guru

You should be able to identify transactions for the new Ltd company because they should be in the Ltd Company name not the sole traders. Also payments and receipts should all be going through a new Ltd Company bank account. The Ltd Company should also have registered for VAT separately from the sole trader. Good luck.

-- Edited by semsley on Wednesday 19th of January 2011 08:38:26 PM

Suffolker · Senior Member

Thanks Semsley, hopefully the accountant will advise the client on the correct things to do. Is what I said above about the balances etc ok? Thanks again

ADAS · Guru

HendyPhilhendy wrote:

Its a separate entity but not unusual to follow on with the same accounting system.

Hi Phil,

I'm really curious by your experience of this, have clients done this off their own back or do you know of any who've been advised to do it this way.

HendyPhilhendy · Guru

ADAS wrote:

HendyPhilhendy wrote:

Its a separate entity but not unusual to follow on with the same accounting system.

Hi Phil,

I'm really curious by your experience of this, have clients done this off their own back or do you know of any who've been advised to do it this way.

I have not done it personally on Sage but the reality of it is the Company is buying a 'going concern' on a particular day. The company 'buys' the assets and liabilities of the business. You prepare a set of accounts (separate to Sage), in which the closing balances get transferred to the capital account.

Therefore, whilst there are some balances to transfer to a Directors loan account, rather than capital etc. the ongoing stuff like Debtors, Creditors etc is essentially the same.

Semsey is correct in that directors should get new purchase receipts etc in the company name; however, HMRC don't get overly bogged down by a few timing differences (materiatility!)

HendyPhilhendy · Guru

Incidentally from a VAT point of view you don't need a new VAT number as again, you can transfer a going concern and keep the same number from the point in time chosen.

Suffolker · Senior Member

So doing a year end on Sage, then producing a brought forward trial balance report and inputting those figures onto the new Sage is correct or not accurate? Finally been told the date it all changed anyway, 19th of Oct.

cheapaccounting · Veteran Member

Had the sole trader been trading long?

Potential tax planning - sale of business to limited company?

Suffolker · Senior Member

Quite awhile yes although he's only been with me since July 2010 and prior to that had no bookkeeper

cheapaccounting · Veteran Member

Suffolker wrote:

Quite awhile yes although he's only been with me since July 2010 and prior to that had no bookkeeper

Does he have an accountant as well or are you able to advise him on valuing the sole trader business and selling it to the limited company. There can be significant tax advantages to doing this - depending on circs.

Suffolker · Senior Member

Yes he has an accountant too. I just want to make sure I do the change over bookkeeping correct so the accountant doesn't have to seperate the transactions at the end of the trading year.

cheapaccounting · Veteran Member

OK I see - I would suggest running through the new bookkeeping approach with the accountant

HendyPhilhendy · Guru

Suffolker wrote:

Yes he has an accountant too. I just want to make sure I do the change over bookkeeping correct so the accountant doesn't have to seperate the transactions at the end of the trading year.

Perhaps you should liaise with the accountant direct. They are in the best position to advise of the journals required. There will need to be some cessation accounts prepared and an opening position established.

Suffolker · Senior Member

Thanks, just wasn't sure if there was a standard way to change over. Have emailed the accountants but no reply yet, although it is a busy time of year.