Partnership to CIC - Expenses Tax Return

[Will C]

Hi folks,

I currently have a business partnership (which as not started trading yet) and was advised not to file a tax return as we have not started trading, so I was going to wait to do this until trading started (and then file all previous expenses from this date). However, I am now going to replace the partnership with a Community Interest Company and I want to know if I need to do a partnership tax return before the partnership closes (in order to claim tax relief on the expenses we've accumulated) or whether I can include those expenses on the first return I do as the CIC?

Any help greatly appreciated as I can't seem to find a clear answer.

Thanks

 

[Deleted member 362062]

In general, expenses incurred for a business that never actually starts trading are not allowable for tax purposes. These are typically considered “pre-trading expenses,” but since the business is being abandoned, they cannot be claimed against future income from that business.

However, there are a couple of important points to consider:

1. If the individual has other self-employed income or plans to start a different business soon, some of these expenses might potentially be claimed against that income if they are relevant to the new business activities.
2. If significant costs were incurred in attempting to set up the business, it may be possible to claim these as a capital loss for Capital Gains Tax purposes. This would require treating the abandoned business attempt as a “failed enterprise.”

It’s important to note that any expenses claimed must still meet the “wholly and exclusively” criteria for business purposes. The individual should keep detailed records of all expenses incurred and be prepared to justify their business purpose if questioned by HMRC.

Given the complexity of this situation, it would be advisable for you to consult with a qualified tax professional.

The reporting requirements for CICs are extensive. If you are considering this route, I urge you to reach out to an accountant who specialises in this area.

Fortunately, I am a bit of a specialist in CICs myself and would be happy to help you.

 

[Will C]

In general, expenses incurred for a business that never actually starts trading are not allowable for tax purposes. These are typically considered “pre-trading expenses,” but since the business is being abandoned, they cannot be claimed against future income from that business.

However, there are a couple of important points to consider:

1. If the individual has other self-employed income or plans to start a different business soon, some of these expenses might potentially be claimed against that income if they are relevant to the new business activities.
2. If significant costs were incurred in attempting to set up the business, it may be possible to claim these as a capital loss for Capital Gains Tax purposes. This would require treating the abandoned business attempt as a “failed enterprise.”

It’s important to note that any expenses claimed must still meet the “wholly and exclusively” criteria for business purposes. The individual should keep detailed records of all expenses incurred and be prepared to justify their business purpose if questioned by HMRC.

Given the complexity of this situation, it would be advisable for you to consult with a qualified tax professional.

The reporting requirements for CICs are extensive. If you are considering this route, I urge you to reach out to an accountant who specialises in this area.

Fortunately, I am a bit of a specialist in CICs myself and would be happy to help you.

Hi Rob,

Thanks for taking the time to reply, I appreciate the detail you have given,


To your point 1. the CIC that we are starting is doing exactly what the partnership did, it's just that we are changing structure, would that make the pre-trading expenses claimable as against the CIC?


It would be good to chat further about your rates, do you have a website or an email I can reach you on?

Thanks

 

[Deleted member 362062]

Hi Rob,

Thanks for taking the time to reply, I appreciate the detail you have given,


To your point 1. the CIC that we are starting is doing exactly what the partnership did, it's just that we are changing structure, would that make the pre-trading expenses claimable as against the CIC?


It would be good to chat further about your rates, do you have a website or an email I can reach you on?

Thanks

As is often the case with tax and accounting questions, the answer to whether the expenses can be claimed within the CIC is a resounding “possibly”

Feel free to visit my website and LinkedIn, which are listed below my signature.

You can also reach out to me directly at [email protected].

I’m currently on holiday, which is why I have the chance to respond quickly here, but I’d love to schedule something for when I’m back from Cornwall.

Looking forward to chatting with you soon!