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Claiming Tax Relief On Pre-Formation Costs For Limited Company

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Starting your own business comes with considerable costs and a wide variety of expenses being racked up before you’re ready for Limited company formation. These costs can quite quickly begin piling up and as your business hasn’t started generating income yet, it’s your personal funds which take the hit. 

However, it is worth noting that you might be able to claim tax relief on these Limited company costs back once your company is incorporated. So, is this possible for UK limited company owners? Read below to discover our guide to claiming back tax relief on pre-formation expenses and discover everything you need to know. 

Can I Claim Tax Relief on my Limited Company Pre-Formation Costs? 

The good news is that, yes, you can claim tax relief on pre-formation Limited costs for your company, as long as you can prove that these purchases were legitimate business trading expenses. 

Under the 2009 Corporation Tax Act, HRMC will consider legitimate pre-ltd formation business expenses as if they occurred on the first day of your registered Limited company trading. This doesn’t just apply to the most recent Limited company costs. Instead, you may be able to claim tax relief on the business expenses you have incurred in more than seven years leading up to your company incorporation date. 

As a result, you will be able to offset your preformation limited costs against the first year of your turnover for Corporation Tax. 

What Pre-Formation Costs Can Ltd Claim Owners Back? 

So, precisely what pre-formation business costs can you claim back on? Here is a list of some of the most common business expenses you may be able to claim tax back on once you have officially started trading as an LTD: 

  • Business equipment such as tablets, personal computers, and laptops. 
  • Stationary, printing and postage costs. 
  • Web hosting and Domain costs. 
  • Business phone bills.
  • Business travel costs. 
  • Professional service expenses such as legal consultants and accountants. 

Can I Make VAT Reclaims on Equipment and Professional Services Purchased Before Ltd Formation? 

If you have purchased equipment and furniture for your company before Ltd formation, such as a company computer or desk, you can claim for the VAT on these Ltd costs. This applies only if the purchase was made within four years of the day your company is registered for VAT on Ltd company costs. 

You can also make tax reclaims on professional service expenses for your business that were paid for within six months of your VAT registration date. 

Claiming Tax On Pre-Ltd Formation Purchases for Your Ltd

As with any tax or business process, there are several conditions you need to be aware of and adhere to when making a pre-formation tax relief claim. Here are some of the most important rules and regulations you need to know about pre-registration Ltd costs: 

  • Solely for Business Use: You can only claim on items and services which are solely for business use and to help your LTD start trading. 
  • Currently Being Used: Only claim VAT on Ltd company costs for goods which remain in hand and in use after you have incorporated your business.
  • Company Formation Costs: Ltd formation costs themselves are classified as one-off capital costs, and you cannot claim tax on them. However, your LTD company could reimburse you if you paid for these costs personally. (Make sure to keep accurate records of this if you choose to do so.)
  • Personal Items: You cannot claim full tax relief on items which were initially purchased for personal use and are now being used in your business. (You can, however, claim these items as business expenses based on the current market value of the item.)
  • Multiple Businesses: If you already have a registered company, you cannot claim on this limited company costs any costs of setting up a second business. HRMC considers this second business to be an entirely separate entity from your first business. 

Before making any tax claims on your pre-formation business costs, make sure you have a clear understanding of how each purchase is categorised by HRMC. You can consult with an accountant or financial professional to make sure your claim is correct before submitting it officially. 

Keeping Records and Receipts for Your Pre-Formation Purchases

Before making any claims for tax on Ltd costs you made before your date of trading, you need to ensure that you have all the required records and receipts to back up your claim. If you do not have receipts for these purchases, you will not be able to prove the transaction or that these Ltd company costs were legitimately for your business. 

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