{"id":9434,"date":"2022-05-07T08:09:21","date_gmt":"2022-05-07T07:09:21","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=9434"},"modified":"2024-01-30T13:30:12","modified_gmt":"2024-01-30T13:30:12","slug":"are-company-startup-costs-tax-deductible","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/are-company-startup-costs-tax-deductible\/","title":{"rendered":"Are company startup costs tax deductible?"},"content":{"rendered":"
Most company startup costs are tax deductible, but the cost of company formation itself cannot be claimed against Corporation Tax. The fee for setting up a limited company is classed as a one-off capital expense, so you can\u2019t claim tax relief through your company on this particular cost.<\/p>\n
However, as a company director and shareholder, you can reimburse yourself for any legitimate business expenses that you pay for personally, including the company formation fee. You don\u2019t have to pay Income Tax or National Insurance on these reimbursed expenses.<\/p>\n
So, let\u2019s take a look at this in more detail to understand exactly which company startup costs are tax deductible through a UK limited company.<\/p>\n
When your company starts trading, you can claim Corporation Tax relief on pre-trading expenses<\/a> incurred \u201cwholly and exclusively for the purposes of the trade.\u201d<\/p>\n Better still, this relief extends to expenses from up to 7 years before the date you start trading. All such allowable expenses are treated as if they were incurred on the first day of business.<\/p>\n The types of pre-trading costs that are tax deductible include:<\/p>\n To offset these expenses against your Corporation Tax<\/a> liability, you will need to deduct the costs from your turnover when preparing your annual accounts and Company Tax Return.<\/p>\n If you incur any pre-trading expenses before setting up a company, you will have to pay for these costs with your own money. This is unavoidable, because you can\u2019t set up a business bank account in your company name before officially registering your company.<\/p>\n In such instances, you can claim reimbursement expenses from your company after it has been set up. You won\u2019t have any personal tax liability as a result of these expenses.<\/p>\n There are certain company startup costs that you can\u2019t claim. These are known as \u2018disallowable expenses\u2019 for Corporation Tax and include:<\/p>\n Whilst the cost of company formation cannot be offset against your Corporation Tax liability, you can claim expenses as a director once your company has been formed.<\/p>\n This means that you can reimburse yourself for business costs that you\u2019ve paid for personally – but only if you keep receipts and meticulous records to back up your claims.<\/p>\n If any expenses have both business and personal elements to their use, only the business portion is tax deductible. This applies to Corporation Tax and VAT.<\/p>\n Company expenses and record-keeping can be complicated and there are a number of grey areas. We would advise speaking to an accountant if your business costs are significant or you\u2019re unsure about what you can and cannot claim.<\/p>\n Paying accountancy fees may seem like an expense you\u2019d rather avoid – but more often than not, hiring an accountant can save you a great deal of time and money.<\/p>\n If you register your company for VAT, you may also be able to reclaim the VAT paid on goods and services bought for business purposes – including pre-trading expenses.<\/p>\n However, the time limit for claiming VAT refunds is slightly different. From your VAT registration date, you can backdate claims up to:<\/p>\n If any purchases are used for both business and private use, you can only reclaim the proportion of VAT that relates to business use.<\/p>\n VAT registration is available to all sizes of businesses – even small companies whose turnover is below the VAT registration threshold. This offers a number of benefits, so it\u2019s worth considering voluntary VAT registration as soon as your company is up and running.<\/p>\n To claim Corporation Tax relief and reclaim VAT on pre-trading costs, you must keep receipts and accurate accounting records<\/a> of all expenses to support your claims. These must be retained for a period of 6 years after the end of the accounting period in which they are claimed.<\/p>\n\n
Company startup costs you can’t claim<\/h3>\n
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Reclaiming VAT on company startup costs<\/h3>\n
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Keeping receipts and accurate records<\/h3>\n