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Business founders/entrepreneurs

Sole Trader to Ltd Company

7 replies

Shesheadingonin · 31/01/2021 12:12

Would really love some advice on here as struggling to get answers on Google! Wasn’t sure whether to post here or in legal so apologies it it’s in the wrong category.

I’m going through a divorce and we are also doing mediation as amicably as possible. However, earlier today, H mentioned that HMRC require him to trade as a limited company as his ‘earnings are way above the threshold’.

What would that mean to you? We both filed our own tax returns a week ago and he mentioned also that his income was £60k. When I queried it saying ‘that can’t be right for all the outgoings and luxuries you have’ he replied ‘60k on paper’. I left it right there as that told me he is hiding income.

He also has several investments (haven’t got anything in writing but he won’t stop banging on about it)!

So with both scenarios, as a guesstimate, what could his income really be? This is purely for me as I’m wondering if I’m being very naive. Regardless of income, I am self sufficient but I do need him to help me take care of our kids.

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delilahbucket · 02/02/2021 14:38

No one can guess what his income is, but HMRC would never tell anyone they were earning too much to be a sole trader and they had to go limited. Get your CMS claim in now because him going limited means he can show as earning less leaving money "in the business" and pay less maintenance. If you think he is evading tax by not declaring his earnings you can also report him to HMRC and they will pull his accounts for an audit.
Go for every penny you can in the divorce settlement as he isn't playing ball and is trying to screw his kids over.

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SedentaryCat · 02/02/2021 14:50

Most likely to protect his money - tying it up in the business makes it less accessible.

I found this, which I'm aware you have probably already seen, but just in case not:
www.simplybusiness.co.uk/knowledge/articles/2020/06/difference-between-a-sole-trader-and-a-limited-company/

I'm a co-director in a limited company along with my DH, which means my salary (basic) is much lower than my income (includes dividends). Dividend can vary depending on how much profit the company makes, how much is re-invested, etc, etc, and so it will effect how much salary he chooses to declare.

I agree with @delilahbucket. Get your CMS claim in.

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Shesheadingonin · 03/02/2021 15:10

This is the exact advice I was looking for, I just said it in a very roundabout way. Thank you both very much. I’ve taken this fully on board 💐

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katmarie · 03/02/2021 15:38

HMRC won't have said that, because trading as a limited company would likely reduce his tax liability, which is not in HMRC's interests. His accountant/financial advisor or his divorce solicitor might well have told him to do it, as a way to protect as much of his money as possible. I hope you have a good solicitor yourself, and consider a forensic accountant too.

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Shesheadingonin · 03/02/2021 16:01

That actually makes sense. More lies.

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Comefromaway · 03/02/2021 16:07

He might well have gone over the VAT threshold (which is based on turnover, not profit) and many do take the opportunity to go limited at that time.

Being Limited company can be more expensive in terms of accountancy fees etc but it can have tax benefits. Most people I know went limited to protect their personal assets in the case of bankruptcy.

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Comefromaway · 03/02/2021 16:09

You do have to declare dividends as income on your self assessment so he can’t get away with. It declaring them. But as long as he doesn’t draw dividends he could choose to leave the majority of profit in the company which would make his personal income less.

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