Deferring Business Profits - Buy/Let Property

by **sandhu40** on Thu Nov 24, 2011 8:49 pm

I need some advice on who to contact for the best advice.

I am a sole trader in London working as an electrician/gas engineer. Recently I have landed a large contract and have started earning around £3,000 per week. In the new year I will start another contract and will start earning £5,000+ per week. I also plan to take 2 people on to help with the work load. I currently employ one person already to handle my admin.

My situation is complicated and messy:

I started this business a few years ago and set up a limited company. The company was removed from the register because I failed to file accounts. So for the last 3 years I have paid no tax. 1st and 2nd years earning were around £30k but this years earnings are around £80-90k.

My assistant is paid via bank transfer straight into her account. I just pay her a basic wage and no tax and NI has ever been accounted for on my side.

My main questions are:

1. How easily can I ensure my tax liabilities are paid up to date?
2. How can I reduce my tax liabilities in the future? What I want to do is set up one company for my current work and buy property with any income/profit that I generate through the same company. Thereby deferring any tax. I do not need to take much money for myself, if any. I initially wanted to get into buy to let but I understand that letting property is not a business so I can just as easily buy, renovate and sell on but still keep all the income/profit in the business and use that to re-invest.

To summarise, I will be earning a very good income and want to use this to buy property and defer/pay zero tax/minimal tax and keep on re-investing the money. I will not need to take any money from the business.

I understand that I may need specialist advice but for now, need to know if the above is possible and what the next step forward should be.

Thank you in advance for any help.

by **Generix** on Fri Nov 25, 2011 10:35 am

I would advise to refer to any of the regular posters in the 'investigations' part of this forum re advice settling prior tax positions. Maybe send a couple of them a PM?

As for your position going fwds I'm sure someone will post and let you know if something is possible.

Are you VAT registered, and if so, was it the ltd company that is VAT registered or are you VAT registered as a sole trader?

by **Incredulum** on Fri Nov 25, 2011 4:06 pm

How easily?

Very, provided you have good records and go to see an accountant. There will be interest and possibly fines and penalties too.

I'm afraid that buying property doesn't allow you to defer paying tax on profits. Corporation tax will be due at 20%.

PS An electrician earning 0.25m p.a., wow! Government contracts, I'll bet.

by **sandhu40** on Sat Nov 26, 2011 1:38 pm

Thank you for the kind comments.

I do have full records because all my work is booked and sent to me by email using spreadsheets. I have never been VAT registered and have gone over the threshold this year and last. Obviously customers were not charged VAT (all private customer, not businesses) so what will happen in this situation? Am I right in thinking that I will be liable for all the VAT that should have been collected?

Just to clarify - property cannot be bought through the company using company money, renovated and then sold on? I know a solicitor who earns alot of money and owns property through a limited company. For some reason he pays his tenants council tax and other bills and counts that as an expense. I work for many landlords and have never come across this before. Could someone tell me the precise reason for doing this? He owns around 80 properties and pays all the council tax himself.

by **sandhu40** on Sat Nov 26, 2011 1:38 pm

Thank you in advance.

by **mullet** on Sat Nov 26, 2011 2:34 pm

I do have full records because all my work is booked and sent to me by email using spreadsheets. I have never been VAT registered and have gone over the threshold this year and last. Obviously customers were not charged VAT (all private customer, not businesses) so what will happen in this situation? Am I right in thinking that I will be liable for all the VAT that should have been collected?

Yes. Disclosure is very important; you need good advice from an accountant who is used to dealing with such matters. Then you need to cough to HMRC. Expect to pay all tax/VAT, interest and monetary penalties. They will want to know precisely what you did/didn't do, and why.

I know a solicitor who earns alot of money and owns property through a limited company. For some reason he pays his tenants council tax and other bills and counts that as an expense. I work for many landlords and have never come across this before. Could someone tell me the precise reason for doing this? He owns around 80 properties and pays all the council tax himself.

It might be because he has dodgy tenants who can't be trusted to pay the bills themselves. And remember that to get tax relief at whatever percentage (20% or 40%) he has to lay out the money in the first place. A deduction for tax purposes does not "return" the expenditure to you - it reduces the amount on which you pay tax.

by **Generix** on Tue Nov 29, 2011 2:50 pm

sandhu40 wrote:Thank you for the kind comments.

Am I right in thinking that I will be liable for all the VAT that should have been collected?

Yes you are - I think I am right in saying that there was recently an amnesty aimed at sparkies for coming forward and making a disclosure which offered less harsh penalties, however I believe this has now expired.

If some of your customers are in business /VAT registered then you may be able to claw back some VAT from them so it is not a cost to you.

Else for two years VAT (plus penalties and interest) you are looking at a large bill I guess!