Claiming Back Expenses Incurred before Incorporation

Claiming Back Expenses Incurred before Incorporation

Expenses involved during incorporation of a business can be claimed back for up to seven years before the company started up providing that they were incurred wholly and exclusively in the course of setting up the business for which the expenses are being claimed.

What expenses are commonly incurred pre-incorporation?

• Internet and domain fees
• Computer equipment and software
• Stationery (letterhead design and print etc.)
• Other professional fees (legal, accountancy, insurance)
• Travel costs and subsistence

What expenses cannot be claimed pre-incorporation?

You cannot claim for costs that will be deducted from profits once the business begins trading, these include:

• Trading stock
• Rent/rates paid in advance
• Line rental for broadband/phone
• Rubbish collection
• Training (maybe, but only in some cases, and this element must be carefully checked)
• Fee for incorporation itself: as this is a one-off capital cost it cannot be claimed by the company against Corporation Tax, although the director may be reimbursed for the full cost.
• Capital expenses that relate to before the company was formed, interest on loans for example.

VAT refunds

If the incorporated business then registers for VAT, the VAT element of the allowable fees incurred for goods and services that were wholly and exclusively for the purposes of incorporation of the business can be claimed back. There is a six-month limit to reclaim VAT for services and a four-year limit to claim back VAT on goods. The records kept in this respect are central to the VAT reclaim element, so please read the HMRC guide carefully.

Reclaiming incorporation expenses

The importance of record-keeping in all respects relating to a successful business cannot be over-stressed, but careful pre-incorporation expenditure record-keeping is critical. Successful VAT reclaim on goods and services will be down to your keeping careful records of your personal against business expenditure; both must be recorded separately, and remember that the expenses must relate wholly and exclusively to the business that has been incorporated.

Please contact your account manager for further information about which pre-incorporation expenses may be claimed.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.