Saving Tax for our Clients
Incorporation of a Limited Company from Partnership
The situation: We were appointed by a client, which was an unincorporated partnership. This business had over the years seen its turnover increase steadily and when they became our client their turnover was more than £8 million.
The client had the following concerns:
- The financial risks associated with running their growing business
- Planning for the succession and expansion of their business
- They were missing out on potential contracts as contractors were unable to verify the company’s financial statements.
The solution: We discussed with them the potential benefits of trading as a limited company. We believed this would offer them further protection, credibility in the market place and greater succession planning for the business.
In order to make this transition we arranged for a third-party valuation to be carried out and obtained HMRC clearance that the valuation was acceptable.
We then worked alongside the business’ solicitors to novate (transfer) all their business contracts to the newly formed Limited Company. We were also involved in transferring their employees to the new limited company under TUPE.
The Partners of the business could claim for the capital disposal on their individual Tax Returns. As the disposal qualified for entrepreneur’s relief they paid tax at a rate of 10% on this disposal, significantly lower than the rates they would have paid on extracting future profits.
The Directors of the new company had large directors’ loan accounts, allowing them to withdraw any repayments of these loans from their company tax free. This resulted in a substantial tax saving to the business and the personal Directors.
This strategy also helped to provide security for the company’s succession planning through the share options available.
As a limited company they are now able to tender for larger contracts as their accounts are in the public domain for potential contractors to review.