Moving side-project from sole trader business into UK Ltd?
I have an app side-project that's earning money and want to move it inside a newly created Ltd to help limit liability and tax. Can anyone share their experience of doing this and any UK accountants/services they can recommend that would help that understand indiehackers?
I've been told I need to get the app valuated by a third-party, sell the app to the Ltd in the form of a loan, and then that loan can be paid back to me as the Ltd makes money. I'm concerned what happens if HMRC doesn't agree with the valuation later, and if there are other options here I don't know about.
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Really good question, I am in a similar situation.
Just to be clear, you can sell your app for whatever price you want. If you want you can sell it for 1 GBP.
You are going to own 100% of the company, right? Does it really matter if the company pays you 10k for the app? When you can basically get the 10k anyways?
Also, how much do you plan on selling it to the company for? If you're worried about a few thousand pounds, you're probably overthinking it.
It seems to me this is an advance tactic that only becomes worthwhile if you're taking on investors or partners and you're evaluating the app at hundreds of thousands of pounds. And at which point new investors will be extremely worried about the fact this company they're investing in is in debt to the tune of hundreds of thousands of pounds.
Are you sure you're allowed to just gift something of value like this? How does this relate to selling e.g. a laptop or property to your Ltd (which usually attracts capital gains tax)?
Yes, if that 10K can be used to reduce the tax you owe.
It's not a gift, it's a sale. You sold it for 1GBP. Massive companies do this all the time. The entire Glasgow Rangers FC was sold for 1 GBP. The reason for 1 GBP is so that you legally get something out of the sale otherwise it would be considered an unfair contract and null void. You can sell for any value up to market value. If you want the company to legally owe you money to the full market value and that value is sky high then yes you would need a third party to come up with it. But you can come up with realistic guesses that are still safe, for example if the standard is often 4x ARR then if you sold it to the limited company for 2x ARR then that is clearly below the market value.
I guess it really depends on how much time and money you're willing to spend to save on your taxes. Personally, I don't see much value in that at this small scale. Also, wouldn't you still need to pay income tax on that money as it is income? You just don't get that income until later.
Overall, if you want to avoid as much tax as possible always talk to an accountant and not indie hackers.
Found this:
"On the contrary to Option A, the sole trader can decide against applying incorporation relief to their gain and, instead, pay CGT upfront. The little known benefit to this option is that by opting to pay CGT immediately, a director’s loan account (DLA) worth the value of your sole trader business can be drawn down from the limited company completely tax-free."
https://www.accountsandlegal.co.uk/small-business-advice/changing-from-sole-trader-to-limited-company
Yes, but getting some background from others can only help in asking the right questions and sanity checking any advice. I'm open to accountant recommendations too.