If you've been trading as a sole trader and then become a partnership, or if you decide to "incorporate" your business (turn it into a limited company), you'll need a new FreeAgent account. This article explains why.
When you change the business type - for example, to become a partnership or incorporate your business - you're creating a new legal entity. A limited company has a legal identity in its own right.
For example, if you don't pay a supplier and the supplier sues your business, then when you're a sole trader, he's suing you because there's no legal difference between you and your business.
But when your business is a limited company, he's suing the company, not you individually, unless you've given personal guarantees.
So what does that mean?
If you change your business type, you'll need to set up a new FreeAgent account because it's a new business.
Remember, NatWest, Royal Bank of Scotland and Ulster Bank NI business current account holders can get a free FreeAgent account for as long as they retain their bank account.
To make the transfer easier, you can export your contacts from your original account and import them into your new account.
And once you've set up your new account on FreeAgent, you would need to drop us an email at email@example.com so we can mark your original account as read-only. You'll still be able to see all your data but you won't be able to make any changes to it. This means that you won't have to pay twice for what is effectively (though not legally) the same business.
For example, you may need to show your data to HMRC or your accountant so that they can fill in your tax returns.
What about opening balances?
Because it's a new business, all the opening balances on the new account will be £nil. For example, if customers owed your sole trade or partnership money at the point where you incorporated, that money is due to you as a sole trader or to the partnership, not to the limited company, so you wouldn't put an opening balance in for the new company for money owed by your customers (trade debtors).
Using the same VAT number?
If the new business is taking over the same VAT number, the new ‘Effective Date of VAT Registration’ will also be the same as the new ‘Company Start Date’, which is found under ‘Accounting Dates’ in your ‘Settings’.
Also, the ‘First VAT Return Period End Date’ must be after the new ‘Effective Date of VAT Registration’ date. This is usually either the end of the month or the following three months, depending on how frequently your new business will be submitting VAT returns.