Sole trader to Ltd company & VAT obligations
I have incorporated a Ltd company ready to apply to have my seller account legal entity changed. I have applied and am waiting for the Ltd company bank account to be approved and opened.
Seasonal sales are about to take my 12 month rolling turnover above the £85k limit meaning I will have to register for VAT within 30 days of that.
So I am considering to apply for the VAT number as soon as I cross the £85k limit (as a sole trader while I wait for approval of change of legal entity so I can continue selling) and then once the legal entity change is confirmed to then transfer that VAT number to the Ltd company.
At what point should I apply to seller verification to change the legal entity? Should I start the process once the bank account is opened? And can the verification process (sole trader to Ltd) be done without a VAT number?
Or should I stop selling to not trigger the VAT obligation and instead apply for a VAT number in the Ltd Company name - wait for the verification to complete - then continue selling.
I want to avoid losing sales, but more importantly I don’t want to hamper my process of transition from sole trader to Ltd company.
Sole trader to Ltd company & VAT obligations
I have incorporated a Ltd company ready to apply to have my seller account legal entity changed. I have applied and am waiting for the Ltd company bank account to be approved and opened.
Seasonal sales are about to take my 12 month rolling turnover above the £85k limit meaning I will have to register for VAT within 30 days of that.
So I am considering to apply for the VAT number as soon as I cross the £85k limit (as a sole trader while I wait for approval of change of legal entity so I can continue selling) and then once the legal entity change is confirmed to then transfer that VAT number to the Ltd company.
At what point should I apply to seller verification to change the legal entity? Should I start the process once the bank account is opened? And can the verification process (sole trader to Ltd) be done without a VAT number?
Or should I stop selling to not trigger the VAT obligation and instead apply for a VAT number in the Ltd Company name - wait for the verification to complete - then continue selling.
I want to avoid losing sales, but more importantly I don’t want to hamper my process of transition from sole trader to Ltd company.
18 replies
Seller_esvgLzKXw2YAl
The first and most obvious question, is why are you changing to a ltd company?
There are only a few circumstances where it is an advantage to do so.
The main one being, the level of profitability. If your making a profit of over 40k per year, then it is just about worth it (this level will be higher with changes coming in). If not, then the administration and taxes etc, will cost more than being a sole trader.
As regards vat and changing over, you want to do these in separate steps.
But do speak to your accountant about this first.
Seller_0a8JwzVCco9bA
I’ve followed up by checking the changes that are coming to corporation tax. According to HMRC from www.gov.uk…
" This measure also announces that from 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000. A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate."
For me personally, as I have now crossed the £85k turnover limit that requires me to be VAT registered, I am making the transition from sole trader to Ltd for 3 reasons.
- I have been advised by my accountant I will be better off operating as Ltd
- The Ltd company’s turnover is reset to zero - deferring the need to be VAT registered straight away
- I can benefit from the goodwill that can be sold to the Ltd company
I have also received the following notice from Amazon…
"Dear Seller,
You may be legally required to be VAT registered in the United Kingdom (UK) based on Seller Central settings.
Under UK law, all online marketplaces must prevent non-UK businesses that are storing products in the UK from offering products for sale after the marketplace becomes aware that the business is not meeting its UK VAT registration requirement.
Once you place inventory in the UK, you will be required to be VAT-registered and to upload your UK VAT number to Seller Central within 90 days."
I’m hoping my Ltd company bank account will be approved very shortly (I’ve submitted the requested documents and am just waiting for approval). And if I can be verified by Amazon soon after that (sole trader to Ltd legal entity) all should be OK.
Once I have the Ltd company bank account open… would I be correct assuming my next steps should be to request seller-verification-enquiry@amazon.co.uk to change my legal entity?
Seller_NoMNQDGnEW5Bx
Don’t forget though if you’ve already passed the 85k you only have 30 days after the end of the month you went over to register so if you went over in December you’ll need to register anyway.
That email also implies you’re not UK based, is that true?
Seller_0a8JwzVCco9bA
Thanks to all responses…
Yes I am UK based so I don’t know why the email from Amazon is worded that way, If I was not UK based I would not have been allowed to sell for the past 24 months which I have been doing without a VAT number.
I do realise I have to register for VAT by 04/02/22 according to HMRC (I crossed the £85k 12 month rolling turnover on 04/01/22).
If my Ltd company bank account is approved this week I can follow the process to transfer the account to a Ltd company through the legal entity change link in seller central (thanks to Neil for confirming that link)…
If all is in order maybe I could be verified within hours or a few days as some forum members have described.
If the transfer does not happen before 04/02/22 I will have to register for VAT as a sole trader for now to continue selling and then transfer that VAT number to the Ltd company once it is set up and when the company reaches the £85k limit again.
Does that sound a reasonable plan…?
Seller_0a8JwzVCco9bA
It’s not that I have been told to register by 4/2/22, I’ve just calculated that my 12 month rolling turnover crossed the £85k on 4/1/22…
so according to HMRC website I have to register for VAT within 30 days of that date…so technically I have to be VAT registered by 3/2/22.
Seller_0a8JwzVCco9bA
If I have a Limited Company set up with a bank account and VAT number I can then request for the legal entity to be changed via https://sellercentral.amazon.co.uk/compliance/legal-entity-change
Assuming everything is in order (I am sole Director, UK resident with no other owner involved) during the verification process I understand that disbursements will not be possible.
What about selling of existing inventory and inventory that is in transit? During verification can sales carry on or will they all be put on hold?
