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

If you have recently set up a limited company, can you reclaim back any business-related costs you incurred before you incorporated?

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 for any costs incurred up to seven years before the incorporation date. These expenses can, therefore, be offset against your 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, and 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) will have 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.

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Last updated: 15th June 2019