Ask HN: Moving consulting work and SaaS income from sole trader to UK Ltd?

The majority of complications when going through a process like this come from tax considerations: if you're not taking this action as an immediate tax minimisation strategy, you do not need to worry about things like goodwill valuations, selling your app to the company etc. and instead you can just transfer the ownership by virtue of reassigning the ownership from you to your company on whichever platforms record it -- as you describe.

Regarding your email address and business name: a business name can be changed, and there's no importance associated with the domain name you use so this is a non-issue. You can register a new domain that mirrors your current, for example if you use `example.com` you can register `example.limited` in addition and use that when you feel it's appropriate if you'd like there to be a clear distinction.

Ultimately, none of this really matters for a small consultancy company. The volumes you're describing are negligible, and any competent accountant will have had extensive experience with this situation so they'll hand-hold you through the entire process, or you can save yourself money and use a neo-accountant like Crunch (crunch.co.uk) which provides all the advice and insight that you're looking for in their documentation.

The most important thing to understand is that in the UK, all company information is public. If you don't want the business finances exposed, then registering as a limited company is a bad idea: anybody can look up your accounts.

> come from tax considerations: if you're not taking this action as an immediate tax minimisation strategy, you do not need to worry about things like goodwill valuations, selling your app to the company

Can you explain more why this doesn't apply to me here? One reason for me going Ltd is to minimise tax by keeping money in the company when I'm personally getting towards the higher tax bands.

Edit: When should you mind about finances being exposed? I'd rather people I know don't look it up but besides that, what does it matter?

Sorry, for clarity, I mean tax minimisation of existing liabilities. You (based on your description) do not have an existing liability that you're looking to minimise, rather, you're looking to minimise future liabilities. Property is a common example of an asset that someone may wish to transfer into a Limited company to minimise existing liabilities (for example, stamp duty). If your business was something you'd acquired personally (i.e: you paid £500k of your own money to acquire from a third-party) and you were still in the red on the acquisition which was influencing your tax situation, that would be an example where you'd want to consider tax minimisation in the process of forming a Limited company.

> You (based on your description) do not have an existing liability that you're looking to minimise

So I've not borrowed any money, or bought anything over the years for business use besides domain registration, email hosting, web hosting, laptop and phone. The SaaS does have value without me though so I think it's sellable if that's relevant.

Most of it is basic questions that an accountant will answer in passing.

Moving payments will likely be a non event, SaaS care about money going in. You might get a brief email asking whether there is a change in your circumstances, and if yes will update your account accordingly.

I dont think you will sell your software to the company. You will set it up, be the sole owner, and will probably transfer ownership to it on creation. Then anything the website makes goes to your company and you benefit as the owner. That’s the simplest anyway. It is mostly impossible for non-accountants to know what makes sense.

Not what you asked, but the awkward thing is getting money out of a llc. You can pay yourself a salary (it is usually beneficial), though you then also need to pay a bit extra typically for the accountant to handle payroll. Then you can extract profits as dividends but again it’s here are different costs and taxes associated, on the company side and on your side. For a sole trader it is all easy: all money coming in is yours, less tax. For a company, the money belongs to the company not you.

There are also awkward laws around consultants who look like employees. I doubt it applies to you if you also run a SaaS through the company, but certainly something to consider.

When talking to accountants try to keep technology details out of it. They are brilliant at understanding tax and why one pile of money isn’t the same as another, but most (not all) wouldn’t know a SaaS if it hit them on the head, and certainly don’t write their software in Rust.

SaaS is a product you sell via subscriptions. Consulting is usually clear. It sometimes matters how unique / niche your skillset is so that’s worth clarifying.

> I dont think you will sell your software to the company.

Are there cases where a one-person Ltd should do something like this?

> There are also awkward laws around consultants who look like employees.

My consultancy projects tend to last 1 to 6 months, tend to be fixed price, I set my own hours, use my own equipment, set my own work plan and usually have more than one client so that seems very safe to me? I find people complaining about IR35 rules online but most of the time it really sounds like they basically are employees.

> Are there cases where a one-person Ltd should do something like this?

Probably. You could retain ownership and rent it to your company. Sell it in return for debt, etc.

I’m guessing these are favourable (potentially) in terms of tax and asset protection in bankruptcy, but also probably have fairness rules that the HMRC would enforce so you’d need to be careful. For example maybe you sell your SaaS to the business for £20M then forever the company is repaying debt to you, instead of paying dividends. There are many issues with this but I’m sure HMRC would pile on their own ones. In general, at the scale you quote, I’d imagine you want simplicity over clever, as the tax differences would likely be small (and possibly eaten up by accountant fees to facilitate more complex transaction).

Re IR35 yes sounds like you’re ok. It’s just a constant shadow looming over you. Anyway sounds like you’re well aware of it.

Clearly, IANAA.

> You could retain ownership and rent it to your company. Sell it in return for debt, etc... For example maybe you sell your SaaS to the business for £20M then forever the company is repaying debt to you, instead of paying dividends.

This idea is very alien to me. Can you link to any concrete examples of this for something like a small solo SaaS company? How do I pick the price? Where is the purchase money coming from when I'm selling it to myself with a company that is starting from nothing? How do I decide between selling vs renting it? What stops this being abused to avoid tax?

The biggest issue is getting the Capital Gain Tax relief correct.

You have a business that happens to be owned by you and you are selling it to another person (your new company). That is a capital transfer like selling shares or property, and normally would attract Capital Gains Tax.

However there is something called "Incorporation Relief" that allows you to defer the CGT charge until you finally sell the shares. To get that relief you have to transfer all the assets of the business to the new company in exchange for shares.

The book entries for it are a bit involved in the new company and you'll have to make sure you get the process correctly - including filling in your self assessment correctly once you have transferred the business.

There are a couple of other ways of transferring the business that may be better tax wise in the coming years. An overview here: https://www.taxinsider.co.uk/incorporation-relief-and-direct...

HTH

Thanks! I read the link but not sure how to apply it here, can anyone provide an example for my scenario above?

How do I get a safe evaluation of my solo SaaS? How does my new company buying the SaaS with money or shares work when the company is starting with zero money in it? How much can I look to save/make by doing this and what risk is there of HMRC disagreeing? Is it really stupid to transfer the SaaS without any 'sell' value?

This area seems like a really big deal to me and I can imagine some accountants not doing it correctly.

The bookkeeping entries are a bit esoteric but essentially you value the business at a reasonable amount, let's say £100K based on the cashflow (perhaps 3 or 4 times the turnover). Then you tot up the value of the actual material things in the business, so domains and the like might be worth £200 on the open market.

What that means then is you have £200 of 'intangible assets - domains' and £99,800 of 'intangible assets - goodwill', then on the other side of the balance sheet you have '£100,000 - shares issued'.

The £100K of shares you receive for the business then get 'Incorporation Relief' on them so you don't have to find £20K of hard cash to pay Capital Gains Tax.

It's all done with bookkeeping entries, not actual money.

You need a chartered accountant, lawyer doesn't sound needed.

There are ongoing costs to having a ltd company, you must keep accurate records and pay for your books to be prepared and signed off by the chartered accountant, it'll be like GBP700/yr or something.

Generally at this level of business, nobody cares who owns the email you transact business under.

Any recommendations? The average I'm finding is more around £1300/year. Crunch is around £700 a year but I'd rather use Freeagent over their own software so I can switch accountant later if needed.

You'll find most accountants have their own software expectations, i.e: saying to an accountant "you must use Freeagent" won't work, they dictate the software and workflows, not you. If you expect to switch accountants, expect to switch software, and so the ability to export data is what matters (and all software will support that).

Makes sense but I already have several years of experience using Freeagent by myself, and there's lots of accountants that advertise they use Freeagent too. If I don't need a specialist accountant, finding one that uses Freeagent seems a good idea and if it doesn't work out (you hear lots of horror stories) I can easily switch without the upheaval of learning new software.

I've been very happy with Maslins (https://www.maslins.co.uk) in the past. I suggest you give them a call and they'll probably answer a lot of your questions above free of charge.

I was a happy client of Maslins when I switched from sole trader to limited company. I was doing freelance software development so the switch was a doddle. You get a FreeAgent account as part of the deal and they have access to it to oversea your accounts. They will also do your personal self assessment for you too.

I’m sure they will be able to advise on your situation.

You don't need an accountant to sign off your books at this level. Its totally legal to do them yourself, and submit them directly the Companies House and HMRC. Micro-entity accounts should take a few hours a year if you use any of the decent online accounting packages.

Can you recommend any packages here? I'm considering VAT registration too. I think for the sake for ~£1K/year that can be expensed, having an accountant deal with it and advise here is a no-brainer in terms of time saving and having it done right.

FreeAgent - it handles both CT, VAT, payroll and self-assessment filing for you. Most importantly, it provides you a real-time figure of "how much $$$ can I take out of my company as dividends?" which accounts for all company taxes and liabilities. Pair it with Starling Bank and you have a modern business stack that just works and gets out of your way.

I'd still recommend getting an accountant at least during the first year just so you can learn everything and have an authoritative resource for tax-related questions; you can drop them when you feel confident doing it all yourself.

If your SaaS is not directly related to your consultancy work, you prob want to keep it separate. That way if any shit hits the fan you've got 1 income stream less at risk.

Plus it makes accounting simpler

The consultancy work is fairly low risk and would be covered by business insurance. Two Ltds would mean paying double the accountancy costs, getting two business current accounts, and a bit more personal admin? It doesn't seem worth it. If the SaaS started bringing in huge money I would likely stop consulting too.

Perhaps. Best to talk to an accountant. fwiw mine are about 70 quid a month, they're generally good but have f'd up in the past so i can't really recommend them. Hence my advice to try and keep things as simple as possible for them.

Thanks, I was expecting a lot of "talk to an accountant" replies but you can't go into that blind imo because you need some base knowledge to ask the right questions and detect bad advice.