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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4186
Experience:  FCCA FCMA CGMA ACIS
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Looking to buy a cafe, already as a ltd co and looking at an

Customer Question

Looking to buy a cafe, already as a ltd co and looking at an asset sale. It has some 11 employees and is profitable.
Someone tells me sole trader is a better option for tax reasons. How can i turn to sole trader if i purchase the company or business in ltd co setup already?
Why is it better? Can someone explain me the differences please?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
In the scenario set out in the question, you do not actually buy the cafe, but the shares in, and hence, the limited company which owns it. You then have the business, the employees and the whole kit and caboodle. You also have one inestimable advantage, a barrier between you personally and the company which operates the cafe as these are in law two separate persons.
I am at a loss to see any advantage in self employment as opposed to being the director of the company. Presumably as it already has employees it will have a PAYE system up and running. You will merely add yourself to this and pay the appropriate tax and NI as you draw moneys from the business. Were you self employed you would have to pay your Income Tax in one tranche and then half yearly thereafter and go through all the palaver of making weekly and annual settlement of NI contributions. Furthermore you would have to set up a completely new PAYE system to service the employees. It seems to me an unnecessary administrative load on top of trying to run the catering side of the business. I would just leave it as it is and should you wish to sell the buyer just acquires your shares and you are shot of the whole caper.
True, you will have to pay Capital Gains Tax on any gain made, but so you would if this were a business outside a company envelope and in both cases Entrepreneurs' Relief would apply which would limit the taxation to a flat rate 10% on the gain.
I would advise you to leave it as it is.
I do hope I have helped you with your problem.
Customer: replied 2 years ago.

I'm confused because the agent replied to my question below with the following yesterday:

ME: I understood the owner to say that the Ltd company is for sale rather than the business, can you confirm? –

AGENT: I did pick up on this in my email reply to you dated 02/03/15 07:48am where I said: Before asking these questions your accountant should have asked first if this was a “Share Sale” or an “Asset Sale”, it is in fact the later meaning you are just purchasing the Goodwill Fixtures & Fittings not the shares as this would mean you would take on the company liabilities, in this case these will remain with the owner. Our advice is not to get involved in share sales of limited companies turning over less then £1.5m as the due diligence costs for both accountants are just too prohibitive, an asset sale is much simpler. The other reason is that very few Landlords will agree to the lease being in the name of a limited company anyway without guarantors unless of course you are a large multiple so most leases are in the name of the business owner.

Expert:  bigduckontax replied 2 years ago.
I smell a big rat here. Whilst leaving the company with all its problems, if any, with the current owners you will be buying the cafe as a going concern, but what about the premises in which it operates? Presumably it is rented from some landlord who might, or might not accept you as a tenant. The remark about landlords not accepting limited companies as tenants is mere froth. Every High Street in the land would be a desert were private companies not acceptable to landlords!
As a first essential I would advise you to check out the premises situation. You might find yourself buying a business where the selling company actually owns the property from which it operates and wants vacant possession as soon as it has got shot of the cafe business. I would be inclined to tread very warily, but I am an accountant and tend to see 'fiddle' wherever I look!
Customer: replied 2 years ago.

Thank you.

The agent and my financial adviser who is tasked with obtaining a loan both said it would be a 3 way solicitor setup. 1 for each side, me, the owner and the landlord.

I have met with the vendor and she assured me the landlord would be happy to extend the lease for 5-10 years as he is happy with the way she turned the business around since 2011-12.

What do you advise in terms of contracts, checks etc.. should I get a solicitor on board once we in principal agree a price, of course subject to lease, debts. I'd like to put all of this in writing so I don't take on any potential debts or issues, I know I want to have a lease with the right to extend should I wish to do so and so on

Should I get a good solicitor on board before or after agreeing a price?

Then get an accountant to advise how to make the best savings on tax, get some SBR from the local authority etc etc?

Expert:  bigduckontax replied 2 years ago.
Firstly my apologies for the delay in response, I was out shopping. Also for my suspicious mind, but you never know.
Yes, i would be inclined to engage a local, trusted professional early in this game to protect your interests. This is particularly true where lease terms are negotiated. Although a business usually has a statutory right to renewal it as an area which needs careful consideration. I know that because I started my professional life as a trainee valuation surveyor with the old London Country Council in the early 60s. Let a solicitor take all that hassle out for you.
For business rates relief have a look here for a full synopsis from the Gov UK web site:
https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief
You might not have to pay anything at all if you are lucky. If you are situated in Wales the situation is rather different as these powers have been devolved to the Welsh Assembly. You may well need an accountant to advise on taxation etc. The first essential is accurate book keeping, not to mention VAT. By the way if the cafe is separately registered for VAT you could novate [VAT parlance], ie take over, the account. However were you so to do and a fault from a previous period emerge you would have to carry the can.
Have I managed to assist; I do hope so? Please be so kind as to rate me before you leave the Just Answer site if you ahve no further follow up queries.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.