If you would like to know more about Clever Accounts, please contact us on 0113 518 8800
Starting a new business may involve some costs. You may need to pay for a number of products and services before your limited company is actually formed. This means that you will need to foot the bill for these expenses personally – at least for the short term.
That said, you might be relieved to discover that you will be able to reimburse yourself for these outlays via your limited company once it has sufficient funds to do so – as long as any business expenses you claim for, meet certain conditions laid down by HMRC.
In this guide, James Leckie – who runs ITContracting.com – looks at some of the typical expenses you will incur prior to company formation, and explores the conditions you need to meet to reclaim such costs.
It goes without saying that the type of costs you may have to meet personally will vary wildly, depending on the type of business you are planning to set up. However, in most cases, some common costs include:
Assuming that any reclaimed costs were incurred wholly, exclusively and necessary for the running of your new business, then you should be able to legitimately process these expenses, and offset the costs against your new company’s Corporation Tax and VAT liabilities, as follows:
Any expenses which are deemed to have been incurred on the first day of trading and can be repaid to you, with the sum offset against your new company’s Corporation Tax liability. You can claim for costs incurred up to 7 years before the date of incorporation. See the Corporation Tax Act 2009 c.4 for the official text.
Similarly, once your company is VAT registered, you can reclaim the VAT element of any pre-trading expenses, for up to 4 years before you have commenced trading.
Interestingly, the actual cost of incorporating a company is deemed to be a one-off capital cost. It cannot, therefore, be offset against the company’s first Corporation Tax bill. Given that the cost of forming a company is as little as £12 (direct via Companies House), this has a negligible effect on your bottom line in reality. And, of course, you can still reclaim the cost personally.
Sign up to Clever Accounts and get fixed fee hassle-free accounting