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

If you recently set up a limited company, can you reclaim any business-related expenses you incurred before incorporation?

The seven year rule

You can claim back any legitimate pre-trading expenses, according to s.61 of The Corporation Tax Act 2009.

These expenses are treated as if they were incurred on the first day the company went live.

In fact, you can reclaim any costs incurred up to seven years before the incorporation date.

These expenses can be offset against your company’s Corporation Tax liability.

As ever, all expenses must have been incurred ‘wholly, exclusively and necessarily’ in the course of setting up your contracting business.

Some of the most commonly reclaimed pre-incorporation expenses include professional fees (accountancy and legal), equipment and internet costs.

For the small print, consult HMRC Business Income Manual BIM46351

What about VAT?

You may also be able to reclaim the VAT paid on goods and services (assuming your company subsequently becomes VAT registered), although the rules are complex.

HMRC manual VIT32000 states that there is a 4 year limit to reclaim for VAT paid on goods, and 6 months for VAT paid on services.

Importantly, if you buy goods (such as equipment), make sure:

… the goods remain on hand at the date of registration and will be used in the newly registered business.

For obvious reasons, you should always keep accurate records of your expenditure before starting up your company. Ask for VAT receipts for any items you buy on behalf of your business.

What about the cost of company formation?

Interestingly, the actual cost of company formation is a one-off capital cost, and cannot be offset against Corporation Tax.

In all likelihood, you (as a company director) paid for this personally, and your company can reimburse you for this expense.

Always ask your accountant if you have any questions about which expenses you can claim against your company’s tax bill.

Partner Contractor Accountants

Last updated: 18th January 2024