At what stage to "start" the business formation?

[sidekickdmr]

So we are in the process of starting a new business, it will be run from the land attached to our house.

We only moved in 2 weeks ago but the ball is already rolling fast, and at the moment we are paying for things from our personal savings.

We will start to incur more costs soon, architects, surveys, planning fees, outbuildings etc, and I am starting to wonder if I should set up the Ltd company asap, move the savings into it as a directors loan and use the business to pay for these things, for Tax and VAT purposes.

The only kicker is, if we REALLY can’t get any kind of planning, the business will not go ahead, so the money spent would have just gone down the pan, but I guess at this stage you wind the business up and that’s that?

Any thoughts?

[Eric Mc]

Setting up a limited company is fairly easy and relatively cheap so you would not be incurring massive costs in setting up a limited company. On the other hand, is there any reason why you would want to set up the company right now? It seems that there are still significant question marks as to whether you can actually start a business so having a limited company on stand by seems a bit pointless at this early stage. I would wait until planning to run a business from the location is approved and then get the limited company sorted out.

Do remember too that there is no obligation to run a business through a limited company.

[sidekickdmr]

I agree that it would be better to set up the company at a later stage, but we will be spending about £5,000 before we are at a stage of having planning, if we just use our personal accounts to spend that money, can we later ofset tax and claim VAT, if at the time of spending it there is no business?

[Eric Mc]

Pre VAT registration VAT reclaims are allowed as long as a number of criteria are met.

Why are you spending £5,000 when planning is in doubt?

What is the nature of the £5,000 expenditure?

If you don't get planing permission, is the business dead before it even starts?

How long will you have to wait before you get a decision on planning permission?

Can the business be run from an alternative location?

[sidekickdmr]

Eric Mc said:

Pre VAT registration VAT reclaims are allowed as long as a number of criteria are met.

Why are you spending £5,000 when planning is in doubt?

What is the nature of the £5,000 expenditure?

If you don't get planing permission, is the business dead before it even starts?

How long will you have to wait before you get a decision on planning permission?

Can the business be run from an alternative location?

£5,000 will basically get us to planning stage, architects, planning consultants, ecology surveys, tree surveys, CGI imagery etc, architect and planning consultant are about £4,000 alone.

We have a plan B, and a Plan C if planning is not approved, but ultimately there is a chance if we cant get any form of planning, then yes the business is dead.

And no, we have just invested 450,000 to secure this house mainly because of the 12 acres attached for the business, so cant set up elsewhere.

[Eric Mc]

So you are prepared to and can afford to write off £5,000 if necessary?

[anonymous-user]

Eric Mc said:

So you are prepared to and can afford to write off £5,000 if necessary?

Doesn't look like he has much option!

Given the nature of the business the OP intends to go into and the large amounts of pre startup capital required I really do think this needs a few hundred quid thrown at a decent local accountant for some startup advice.

[sidekickdmr]

Eric Mc said:

So you are prepared to and can afford to write off £5,000 if necessary?

Yes, it’s a necessary risk unfortunately.

Thanks Desolate, I'll have a look for an accountant for an initial chat.

[Eric Mc]

If you are prepared to lose the £5,000, then the cost of setting up a limited company now is not of any real significance. I'd go ahead and do it.

I would advise getting some advice on how the company needs to be structured regarding shareholdings etc.