Tax & Accounting News

Claiming Back Pre-Trading Expenses

10/11/2009

Many new business owners may have incurred expenses in getting their company up and running, which they paid for out of their own pocket, but once a business is successfully established, it may be possible to claim back these costs against tax.

Pre-trading expenditure can be incurred in two ways – by an individual before the company was formed or by the company after it was formed but before it started to trade.

In the latter case the rules are straightforward – any expenditure which would have been allowable for a tax deduction had the company been trading at the time can be claimed for in the company’s first set of accounts.

However, if a director or employee-to-be paid for business expenses prior to the company being set up, the position is more complicated, as the person who incurred the expenditure is the only person who can make a claim – but personal expenses are normally taxable unless they relate ‘wholly and exclusively’ to employment, which cannot apply as there was no company or employment in place at the time.

HM Revenue and Customs (HMRC) has now indicated that expenses received by a director in these circumstances should not be taxable, so it is certainly worth making a claim to the company to reclaim the expenses incurred prior to when the business was set up. Of course the appropriate documentation needs to be available to back it up.

For more information please contact us.