Q: I have a home-based business idea. I need a computer to write my business plan (to support business post launch). Can I claim this expense back against tax when I eventually set up my limited company?
Jun 01 2010
Answered by: Clive Lewis Ask a question
Yes, expenses incurred pre-start up can be claimed against tax. However, you have to be careful. If you commence trading before the limited company is formed you will have to transfer the assets and liabilities across to the limited company after its formation. This is not difficult provided you keep good records of income and expenses and assets and liabilities. Keep all the receipts and invoices in case you are challenged by HMRC. The transaction will be made through your director’s current account, which if in credit, creates a loan between you and the company. This loan can be repaid to you at any time without a tax liability being incurred
VAT on pre-incorporation/pre-trading expenses
VAT can be reclaimed on items bought in the three years before registration that you still had in your possession on the date you registered. This may include stock, office equipment or vans for example. VAT can be reclaimed on services supplied in the six months before registration, providing they do not directly relate to goods that have been sold prior to registration. This may include rent, advertising or telephone bills, for example. In all cases you must have a valid VAT invoice, and the purchase must have been for business purposes.
The following conditions must be met:
• The individual should be reimbursed in full by the company
• The individual should not have already claimed the VAT (i.e. as a registered sole trader)
A computer is an asset (as opposed to an expense), which is recorded in the balance sheet of the business and written off (depreciated) over its useful life – normally three years. Computers currently qualify for the Annual Investment Allowance of 100 of expenditure up to £100,000 in any year) but this may change in the budget on 22 June 2010.
The HMRC website has lots of useful information on Starting up in Business.
I suggest if you have not already appointed a chartered accountant, you consider talking to one before doing your business plan. They can offer advice on the key points in a plan as well as providing more general advice on starting a business including record keeping and who to advise of your new company. You can find a chartered accountant in your area by going to the ICAEW site.
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