How to claim pre-trading expenses from your limited company?

It is quite common for business owners to personally accrue pre-trading business expenses prior to when their company was formed. You will normally incur these costs while operating as a sole trader.
For example, if you’ve purchased a work laptop a few years back or stationary equipment for your new office.

Claiming expenses as a Sole Trader or via your Limited Company

If you’re operating as a sole trader, these business expenses can be declared and reclaimed on your annual Self-Assessment tax return.
When it comes to claiming pre-trading company expenses, these can be declared on the company’s Corporation Tax return, up to 7 years before the company was formed.

Claiming VAT

If your business is VAT registered, you can also claim back VAT on pre-trading expenses, for up to 4 years before your company was formed.

Here are some of the allowable pre-trading expenses you can claim back.

• Office costs – stationery or phone bills
• Travel costs – fuel, parking, train or bus fares
• Clothing expenses – uniforms
• Staff costs – salaries or subcontractor costs
• Things you buy to sell on – stock or raw materials
• Financial costs – insurance or bank charges
• Costs of your business premises – heating, lighting, business rates
• Advertising & marketing – website costs
• Training courses related to your business, for example, refresher courses

Can you reclaim costs related to forming your company?

Unfortunately, costs directly involved with incorporating a company such as the filing fee paid to Companies House will be considered a one-off capital cost rather than pre-trading expenses.
Hence, you wouldn’t be able to declare these costs on your first Corporation Tax return.

Further things to bear in mind when claiming pre-trading expenses

• Make sure you keep accurate records of purchases made, including receipts.
• You can only claim for expenses that are solely for the benefit of the business. Under the ‘Duality of Purpose‘ rules, you cannot claim for costs that have a personal benefit.
• You must not make any purchases using a proposed company name until it has been formed at Companies House.
• Always speak to your accountant if you have any questions relating to company expenses.