S/e into Ltd...

Hi, a Ltd Co has been bringing forward losses for the past few years.... mostly from general overheads, biggest being directors salries (actual business being done in Ltd Co very small, almost nil, with likewise almost-nil direct expenses...)

Separate self-employed business, reasonable prfits.... is it possible to transfer the s/e business into trhe Ltd Co in order to then offset future profits on that business against the losses b/f in Ltd Co?

The Ltd Co owes the directors Directors Loans, so can any money going into the Co thenn be paid out to directoirs tax-free, to pay back those loans?

Thanks............

Reply to
Mark
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Is the self employed business in the same trade?

Who is going to put the money in?

Reply to
PeterSaxton

In the same trade as what, thpough? The Ltd Co has tried a few different thingfs, but only in a very small way.... it's never really done much. How close to the specific trade(s) of the s/e business does it need to be? Anyway, the main part of the losses brouyght forwrad in the Ltd Co aren't really related to the little bit of trading that it has done, but rather from paying directors salasries.....

The clients of the original s/e business wouold contract with the Ltd Co in future, so they'll pay money in.

Reply to
Mark

I think it would be better for you to say what the self employed trade is and what is the nearest of the limited company trades.

So if there's not enough cash in the company now these directors will be able to get money out tax free but it will reduce the money available to pay dividends.

Reply to
PeterSaxton

I think it would be better for you to say what the self employed trade is and what is the nearest of the limited company trades.

S/e busines is specialist calculations and reporting consultancy, including some software development and support. Ltd Co started off developing some stand-alone calculations-related software (nothing to show for it now, never actually made any sales). Then moved into Web-based calculations (plan to charge small fee for more complex calcs, but so far has just earnt tiny advertising revenue).

How close/differnt do they need to be, to be able/not be able to offset losses against profits?

So if there's not enough cash in the company now these directors will be able to get money out tax free but it will reduce the money available to pay dividends.

Yep, thats the idea - paying back the loan would be tax-free but dividenmds might be taxed if high-rate taxpayer?

Reply to
Mark

It's a matter of reasonableness and case law and I admit I don't have much experience in this area but I would think that "a reasonable man" would think that the calculations-relatedness of both businesses would point to it being in the same trade.

Yes, you are in effect enabling the previous owners to get their loans tax free but the new owners (even if similar) won?t have enough cash to pay all the dividends possible.

Reply to
PeterSaxton

Perhaps I'm missing the point here. You have a choice to either work s/e or being employed as a director or an employee of this Ltd company. You can then raise invoices in either your s/e name or through the Ltd company. If all the directors owed money do this then each can get their loan back. If it's beneficial to have some profit created in the Ltd company then raise some invoices through it. It's name and what it has already traded in should not be any issue.

IANAN & IANAA

Reply to
Fred

It's a matter of reasonableness and case law and I admit I don't have much experience in this area but I would think that "a reasonable man" would think that the calculations-relatedness of both businesses would point to it being in the same trade.

Do you know how broad the trade categories are, normally? If you can give me any pointers as to where I could look this up further, I'd appreciate it - many thanks, Peter!

Also, the Ltd Co did tender for some business identical to that done by the s/e business (from some potential new, but much smaller, clients) .... although didn't win any of that busniess. Do you think that makes any difference?

Yes, you are in effect enabling the previous owners to get their loans tax free but the new owners (even if similar) wont have enough cash to pay all the dividends possible.

There'll be no change of owners. Would it actually be possible to pay dividends, though, if still carrying foreward losses? I mean, say losses b/f currently stand at X thousands, and the new business makes profits of Y thousands next year, with Y less than X. Can dividends be declared in respect of the profit Y, even though overall losses of (X-Y) will be carried forward?

One more question, if I may - let's suppose future profdits finally match past losses by May 2010. The Ltd Co's financial year runs to 31 March. Would that mean that the Ltc Co still wouldn't have to pay corporation tax until

31/12/2011 (first overall prodfit made in year 1/4/2010 - 31/3/2011)? Thanks for all your help, Peter.
Reply to
Mark

Does "what it's already traded in" not affect whether you can use the past losses to offset future profits for tax?

Reply to
Mark

A Ltd company is a separate legal entity and can trade in whatever it likes. It can diversify or completely change track. So past trading business areas are of little consequence to future ones.

I would say the most important aspect is that is genuinely trading and not a cover for shifting money from one entity of yours to another. Raising an invoice to a genuine customer and taking the money out as loan repayment would sound a very obvious thing to do. I can't see the IR batting an eyelid. It's done every day!

There are different issues where a loss of one company can be carried forward to the gains of another in the same business field. But that's not what we're talking about here and I don't know much about this area.

IANAN & IANAA

Reply to
Fred

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You can only pay dividends out of undistributed reserves. You don't look at individual years in isolation, only cumulatively.

Nearly! 1 January 2012 is when the payment is due. When you say profits and losses you should be referring to taxable profits and losses.

Reply to
PeterSaxton
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Hang on .... 1/1/12 is a Sunday, and hence 2/1/12 is a bank holiday.

What are the rules in this case - shouldn't payment reach HMRC by Friday

30/12/11?
Reply to
Martin

Martin

No, the rules state that the payment is due by 1 January 2012 - whether it is a holiday or not.

Obviously if a certain day is not a banking day and a payment didn't credit HMRCs account until 3 January 2012 it is late.

If a cheque or cash was delivered on 1 January 2012 it is not late.

Reply to
PeterSaxton

It would seem even 3/1/12 is not late ...

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Either...

BACS rec'd by HMRC on Tuesday 3/1/12. EDP = one working day before 30/12/11.

Or...

Cheque in their letter box 3/1/12.... Office closed for preceding 3 days, hence EDP is 30/12/11. (Assuming Friday evening counts as "date office was first closed", but maybe they mean Saturday, being "office not opened, hence closed")

Presumably, they also follow the SATR filing date rule if found in letter box first thing 4/12/11... if postie delivers that early?

Reply to
Martin

Peter, did you spot the abiove two paragraphs from my previous post? - I'd appreciate any comments you may have.

You can only pay dividends out of undistributed reserves. You don't look at individual years in isolation, only cumulatively.

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That's what I thought - I don't thgink there are any undistributed reserves. Basically, the co has received X thousands directors loans, and paid out close to X thousands directors salaraies, with other transactions being much more minor. Does that mean future priofits of more than around X thousands need to be made before dividends can start to be paid?

Thanks agsin for all your help, Peter. Also - did you spot the two paragraphs further up in my previouos post? ^^^

Reply to
Mark

Really? Suppose the Ltd Co makes 10000 profit, and then pays 10000 off the directors loan. No money left in co. At the end of te year, if the losses b/f can't be used to offset those profits for tax, won't the taxman want some corporation tax on the profits - but thre co will have no money toi pay it?

Reply to
Mark

Yes, you're right. The key phrase is "if the losses b/f can't be used to offset those profits". The losses need to exist in order to be able to reduce your taxable profits. Whether this involves repaying loans or not is not relevant for corporation tax purposes. What is relevant for the directors' *personal* tax positions is that if the money comes to them as salaries or dividends then they may have personal income tax to pay, but if it's just a return of loaned money, then of course they won't.

Reply to
Ronald Raygun

This may sound very silly, but why have you been making loans to this company and then been taking it out as director's salaries? Was this an attempt of shifting, or making use what's left of an income tax band, from one year to the "previous"?

Reply to
Fred

No, no attempt at shifting! The PAYE scheme was set up at the beginning to get the company off to a proper start, paying salariues just below the personal allowance - expecting the co to make more than that. Loans were made initially to cover the first months, and then continued when business didn;'t make enough to cover the salaries. In fact, co salary has just been pushing one director further into the high-rate tax band.... (altho another diurector had no other earnings).

Reply to
Mark

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How about starting from here

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Reply to
PeterSaxton

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