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

Posted 19 Feb 16

The process of forming a limited company begins long before the date of incorporation. You will need to write a business strategy which will put your ideas into practice, make the product you want to sell, and create a marketing campaign to target your future clients.

It is then possible and expected that you may invest money in your business before it’s registered with Companies House. However, can you claim those expenses even though your company didn’t technically exist when you paid for them?

The good news is: yes, you can. According to Section 61 of the Corporation Tax Act 2009, “the expenses are treated as though they were incurred on the start date (and therefore a deduction is allowed on them).” You can claim the expenses you made for up to 7 years before the company’s incorporation date. Therefore, any expenses you made for business purposes, such as internet and domain name fees, computer equipment and software, accountancy and other professional fees, stationary, and travel costs can be reclaimed.

The only thing you need to remember is that these expenses have to have been made solely for business use. You will need your receipts and proof of purchase to claim them, just like you would after your company’s incorporation. Remember that any training costs that take place prior to incorporation are not eligible.

Although you are officially allowed to reclaim expenses from the last seven years before trading, for VAT purposes it’s just six months. The majority of business owners decide to claim only these items purchased in the six months preceding the launch of their new companies, since proving older purchases might be difficult. Often it happens that you buy equipment for hobby purposes, however, later decide to use it in business. Unfortunately, you won’t be able to claim such items.

Things to Remember:

Always keep accurate records of any pre-formation expenditure, in order to reclaim and prove these costs to HMRC
Assuming you intend to be VAT registered once you form your company, make sure you always ask for VAT receipts for all your business expenditure, so this can also be reclaimed in the future
You cannot reclaim the fee for forming the limited company, as it is treated as one-off capital cost. However, if the director paid for it personally, this cost can be reimbursed to him
You cannot reclaim other capital expenses from before the company was formed, such as interest paid on loans

To avoid any confusions and penalty fines, contact a professional and certified accountant to ensure the validity of the purchases you wish to claim. At <a data-cke-saved-href="/index" href="/index" "="">Tawanda Accountants we make sure our clients always get the most out of their businesses. Contact us today to find out how we can help your company grow.