What pre-incorporation expenses can I claim?
When you start up in business, you are likely to incur costs before you start trading or bring in revenues. Sometimes these costs can be substantial but HMRC makes some of them tax deductible so you can claim back these pre-incorporation expenses.
What is a pre-incorporation expense?
Pre-incorporation expenses are those costs incurred in setting up a business which have been paid for out of personal funds. The tax law allows you to treat pre-trading expenses as though they were incurred on the first day of trading and, in many cases, you can go back up to seven years before your incorporation date and claim back these expenses against your Corporation tax bill. However, as with all business expenses, to be tax deductible, they must be ‘wholly and exclusively for the purpose of business’. That means you can’t buy a new tablet for yourself, then later start using it for business and claim back the cost.
What pre-incorporation expenses can I claim?
Not all pre-incorporation costs can be claimed. For example, you cannot claim the one-off company formation costs associated with incorporating your business as this is regarded as a capital expense. However, there are many more expenses that are tax-deductible:
Computer equipment: If you buy equipment such as PCs, laptops and printers for you or any staff who might be working with you, you may claim these costs.
Software: Computer software such as MS Office or other programmes that you need to do business are claimable.
Website hosting & Domain names: Getting your online presence up and running can be costly, so expenses incurred in building and hosting a website can be offset against Corporation Tax.
Travel costs: Cost such as airline and train fares incurred wholly and exclusively for business purposes prior to your incorporation date can be deducted as allowable pre-incorporation expenses.
Office rental or use of home office: Claim back costs associated with premises for running your startup.
Training courses: If you require training to run your new business prior to incorporating, you can also claim these costs.
Mobile, landline and broadband: Communications costs that are wholly and exclusively for business purposes are also on the list of tax-deductible expenses.
Stationery, postage and printing: Admin or general office expenses are also on the list as long as they are necessary to run your operations.
Professional services: This could include accountancy, legal and other professional fees such as architects.
Business insurance: Having professional indemnity and/or product liability insurance is vital so this is also a claimable expense.
Professional subscriptions: If you need to keep up a professional accreditation with your industry body, the cost of your annual subscription is an allowable deduction.
VAT: If your company becomes VAT registered, you may be able to reclaim VAT paid on goods and services. According to HMRC, there is a 4 year time limit on reclaiming VAT paid on goods and 6 months for services. Ensure you get a full VAT receipt and keep your records up to date.
What records should I keep so I can claim pre-incorporation expenses?
To claim pre-incorporation expenses, you will need to keep all the receipts associated with costs you wish to claim. The simplest way to do this is by using an accounting software package like Xero or QuickBooks with a receipt capture software such as Dext.
Need support in the early days?
If you are about to incorporate your startup business but aren’t sure what pre-incorporation expenses you can claim, talk to our knowledgeable team at Adams Accountancy. We offer a no-obligation, free consultation to get to know you and your business a little better.
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