This is a complex issue to go through and it is imperative that you seek advice from your accountants and through them the inland revenue.
That said ,with the right advise from your accountants its also not that difficult and could well prove to be a worthwhile exercises from a tax mitigation perspective.
OK so a sole trader business has a value in its Tangible assets (stocks,equipment,pre payments etc) and then it has its "good will" value which is basically a value on what the overall business is worth.(what you would sell for and what someone would be willing to pay)
Tangible assets are easily valued as these are shown in your accounts..the goodwill value is the difficult one to value however generally its 3x the average annual net profit position as a general rule of thumb figure.
To get to the goodwill value you need to consider what you would sell your business for as well as look at the net profit position over the last 3 years trading.
There will no doubt be a considerable difference between what you feel the business is worth and what the net profit position valuation shows.
OK so you say you think your business is worth 100kyouraverage net profit is say £20k x 3 = £60k.
So you need now justify the difference between the two figures ..this is where it gets messy.....your accountants will talk this through with you and then once you have agreed a "realistic" figure they will then refer this to the inland revenue for their approval.
Once you have their approval you then can start properly.
So you agree a Tangable asset worth of say £10k and a goodwill figure of say £75k(which inland revenue have agreed) this means that when you establish the new LTD company that you are "transferring" or loaning to limited company £85k.
This £85k will be subject to capital gains tax however there are some good "offset" allowances available right now.
Now it is most likely that the new LTD company will not have £85k to pay you in one hit so this sum goes into your "directors loan account" with the LTD company .
You are free to draw this down whenever and however you wish without attracting tax..as you've already been taxed on this sum through your capital gain(as mentioned above).
The trick to mitigate taxable earnings is to draw down from the directors loan account as well as drawing a minimum wage through the payrole..this way you only pay minimal PAYE however your national contributions are paid and maintained up to date.
Now this all sounds good however it is only worth considering having taken professional advice from your accountants,followed inland revenue guidelines and that your accountants confirm that this would be a good means to "mitigate" tax deductions and that it is worthwhile from the perspective of future earnings and security(ring fencing)
Many people think or simply want to be a LTD company because it looks/sounds better and that they can say to everyone.."well im a Director you know" .
Well the truth of the matter it really doesnt matter one bit...what does matter is operating your business through a vehicle which is most tax efficient and protective to you as the business owner.
Therefore it is important not to make the change purely for vanity purposes...in many cases a sole trader business can be more tax efficient than a LTD company.
Hoping this hasn't confused you or bored the pants off you.
MOST CERTAINLY TAKE REFERENCE AND ADVICE FROM YOUR ACCOUNTANTS...thats what there there for and what you pay them for.
Good luck :hug:
