Can I reclaim expenses from before I formed my limited company?

If you spent money on setting up your business before you incorporated it, you may be able to claim for some or all of these pre-trading expenses, as long as they are legitimate business expenses.

This article looks at what is involved in claiming pre-trading costs.  

The expenses must be legitimate

We’ve talked extensively about legitimate business expenses, as only those expenses which have been incurred ‘wholly, exclusively and necessarily for the business’ can be claimed for. So, if you purchase a piece of equipment, like a laptop, and you use it for personal things, you won’t be able to claim for it as its classed as having a dual purpose.

What you can claim for

Here is a list of some of the pre-trading costs you are allowed to reclaim:

• Professional fees – cost of the services of an accountant and / or solicitor
• Business insurance – for example professional indemnity insurance
• Stationary – printing, postage etc
• Travel costs – if instance, the cost of the train fare to visit a client
• Phone bills – the identifiable costs itemised separately on your phone bill
• Equipment – as long as it solely used for the business

Something that is missing from this list is the company formation cost. This is because it is classed as a one-off capital cost. However, if you paid for it personally, as the director of the limited company you can reimburse yourself.

It is important to remember that there can be quite a lot of rules regarding expenses, so it would be best to speak to an accountant before you claim any expenses if you are unsure.  

What’s the catch?

This is what many contractors say to us when we tell them they can claim for pre-trading costs. What we say to them is that as long as they are legitimate business expenses and they don’t date back any further than seven years from the date of incorporation, there aren’t any catches.

Of course, any expense claims must be supported by receipts that prove how much you paid and the date of the purchase. So, keeping organised records is vital.

Why claim for pre-trading costs?

As these expenses are deemed as being incurred on the first day of trading, you can offset them against your turnover for Corporation Tax purposes, and such reduce your Corporation Tax liability.

I’m VAT registered. Can I claim for this as well?

This is another question we frequently get asked. The answer is yes but the period in which you can claim is much shorter. There is a four-year limit from the date of trading for claiming back VAT that you’ve paid for goods for the business. Whilst, there is a six-month limit for claiming back VAT on services.

Again, it’s important that you keep copies of all your receipts and that these receipts show details of the VAT paid and the items should be still being used in the business.

Before you start rummaging through draws or cupboards for receipts, speak to an accountant who is experienced in this area. One of our directors will be happy to answer any questions you may have about claiming pre-trading costs. Give us a call on 01962 867550 to arrange a time for an informal chat.