In a recent tax case HMRC proved that a trader claiming to operate through a limited company was actually trading as a sole trader. In order to “trade through a limited company” more is needed than simply creating a company at Companies House. It is also necessary to actually operate through the company:
All business income must be banked into a bank account owned by and in the name of the limited company
Contracts must be in the name of the limited company
Advertising, emails, websites, letters and forms must include the company name in full and company number.
Sales invoices and accounting records must be clearly in the name of the limited company.
All records and transactions must be clearly separate from the owners personal finance.
Payroll must be run and submitted by the company for the employee being the owner manager.
Dividend records must be created at the time of the dividends including minutes of meetings and dividend vouchers, and match actual dividend payments or loan account credits.
The correct entries must be included on the directors personal tax returns matching the payroll and dividend records.
As with all of our tax tips and web pages this information is necessarily summarised and of a general nature. If you would like detailed specific advice please contact us.