pre-trading expenditure how to do this

[Mattzew]

Hope someone can help with our pre-trading expenditure stuff.

We registered ltd on the 01/12/2011 but we actually started planning, buying domains, hosting, computers etc... a few months prior to official trading.
Can we claim the pre-trading costs as expenses? If so how would we do this as a lump sum?

thanks

 

[elaine@cheapaccounting]

Often a business incurs a few costs before it actually starts to trade.

The costs can of course be claimed in the accounts assuming that they are for the business.

The general rule is that the qualifying pre-trading expenditure should be treated as incurred on the first day that the business started to trade. - so record them in the same way in the accounts as you would for any other costs, with the date as the start date of the business.

The costs must be those incurred for the specific needs of the business.

We would recommend that you keep all receipts / invoices for any amounts that you spend in getting our business up and running.

If you become vat registered then you can look back over your purchases and in some circumstances you can reclaim vat:

• for goods: you can reclaim VAT up to three years before you registered for VAT
• for services: you can reclaim VAT up to six months before you registered for VAT

There are certain conditions which need to be met to be able to do this and we suggest that you have a look at the full guidance on this.

 

[SBlundell]

Can we claim the pre-trading costs as expenses? If so how would we do this as a lump sum?

I think Elaine's covered everything you need to know on the expenses themselves.

Presumably, yourself or your colleagues have incurred the expenditure on behalf of the company. If the company has sufficient funds (unlikely when it first starts) you can simply reimburse the amounts suffered like any other expense claim. Alternatively, introduce the amounts owed as a creditor (directors' loan if you are directors) by debitting the relevant expense codes & creditting an other creditors code. Then drawn the money when the company has sufficient funds.

 

[atmedia]

Hmm

What if both directors put around £500 each to buy business stuff?

Can this just be added as a lump sum as pre exp ?

 

[elaine@cheapaccounting]

Hmm

What if both directors put around £500 each to buy business stuff?

Can this just be added as a lump sum as pre exp ?

That would be recorded as a loan from the directors to the business then the business would spend the money and account for the items as they were bought.

Unless you mean - claim you just claim £500 without receipts or any back up then the answer would be no you need proper accounting records.

 

[jamie b]

Hi there,
New to the forum so sorry of this has been covered elsewhere...
I read somewhere that any larger purchases for business pre incorporation should be invoiced in the company name to be able to claim back, IS this correct?
Basically, in addition to the usual pre incorporation expenses (formation, domain etc) i purchased a laptop for business use. Was purchased with my own money but wish to claim back as expense and make the laptop and asset of the company. Is this ok??

 

[elaine@cheapaccounting]

The rules are as I have stated above regardless of size of purchase

 

[SBlundell]

Hi there,
New to the forum so sorry of this has been covered elsewhere...
I read somewhere that any larger purchases for business pre incorporation should be invoiced in the company name to be able to claim back, IS this correct?
Basically, in addition to the usual pre incorporation expenses (formation, domain etc) i purchased a laptop for business use. Was purchased with my own money but wish to claim back as expense and make the laptop and asset of the company. Is this ok??

VAT Notice 700 - The VAT Guide says

11.4 What are the rules for VAT on supplies before incorporation? ​

If your business is a corporate body (a company, charity or association), the rules above do not allow you to reclaim any VAT on goods or services obtained before the body was incorporated. But you can treat this VAT as input tax if the:
​

rules in paragraphs 11.2 or 11.3 would allow you to do so if the goods or services had been supplied to the person who is now registered for VAT;

goods or services were obtained or imported by a person who became a member, officer or employee of the body;

person was reimbursed for the full cost; and

person was not a taxable person at the time of the supply or importation.


No the invoices do not have to be in the company name - so long as you are an employee / director of the company acting on its behalf pre-registration.

Obviously I would be a little bit careful if you purchased the laptop substantially before the business existed - it still has to be a 'reasonable' asset of the company.