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TaxVince
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Category: UK Tax
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Experience:  Chartered Accountant >20 years + Qualified IFA
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Hello. I am a sole trader and I will reach the VAT threshold

Customer Question

Hello. I am a sole trader and I will reach the VAT threshold after another 20k. Can I stop trading like this and set up a ltd company? Will this reset the vat clock as I wasnt required to register at the time of incorporation? Thanks
Submitted: 1 year ago.
Category: UK Tax
Expert:  TaxVince replied 1 year ago.

MamaTax :

Hi Its MamaTax Here!

MamaTax :

The VAT threshold of £79k is based on the past 12 months turnover ie turnover over the last 12 months. Hence to ensure you dont meet the £79k threshold, then you can reduce your turnover or stop trading as long as your past 12 months is below the VAT threshold.

Setting a new entity ie from sole trader to Ltd company means these are separate entities for VAT purposes, so issues of registration are to be considered for each entity separately unless you are seen as you are artificially splitting or setting up a business for mere purpose of avoiding VAT purposes.

MamaTax :

As along as you have good reasons for closing your sole trader business and starting a new LTd company then VAT registration for the Ltd company is based on the new 12 months period starting from date you start trading in the Ltd company.

MamaTax :

However you may need to be aware of other taxes to consider when transferring a business from sole trader to Ltd company including capital gains on disposals of business.

MamaTax :

Hope this helps. could you please let me know if you are answered.

Customer :

What would be classed as a good reason for starting a ltd company as opposed to being a sole trader? I am a management accountant so am well aware of corporation tax, rules on dividends, accounts prep etc but for the life of me could not find a definitive answer to my question from HMRC. I just don't want to get into a situation where I have VAT registration backdated forced on me.

MamaTax :

Thanks for the response. There is no direct reference on this but there is a general Anti-tax avoidance rules that covers all areas of taxation..whereby if you take a decision for mere reason of avoiding tax then you can be caught by such rules. In other words, you must have some commercial reasons for that decision of changing the legal entity.

MamaTax :

These can include operation

Customer :

So would this be an acceptable reason - Basically I want access to greater suppliers who will only deal with registered companies and to build up a credit rating in the company name?

MamaTax :

operational reasons - companies have separate legal structures and you can delegate work ; credit reasons; security of assets etc

MamaTax :

thanks for your reply. thats a

MamaTax :

that is a good enough reason...i agree with your comments.

Customer :

Ok great thanks

MamaTax :

Welcome. Hope all goes well. IF you are sorted, could you please rate the question before you go.

Expert:  TaxVince replied 1 year ago.
Hi there

Im just following up on the question and see if you still need any further information. If you are answered could you please rate the question so that i can get paid for the time i spent otherwise i wont. Thanks

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