Expenses before a company is formed?

[grumbas]

Myself and a couple of friends are looking at setting up a little sideline business - it won't have a massive turnover or anything, but we will be forming a limited company for the protection that offers.

At the moment we're looking into feasibility and incurring some costs - can these be put through the company retrospectively when its formed?

Just to clarify, if the project comes to nothing then we'll be happy to write the costs off and chalk it up as experience.

Cheers

[Brown and Boris]

I believe they can yes. I am sure others will confirm or deny but it may even go back 2 or 3 years. BUT tell the tax man you are earning FFS.

[Eric Mc]

You can offset pre-trading expenses against trading profits but there are some restrictions.

Formation expenses (e.g. costs incurred in setting up the company) are NEVER allowable.

Capital costs (purchase of equipment and other fixed assets) will only be offsetable according to the Capital Allowannces rules pertaining to the particular assets acquired.

If the costs were incurred personally by the directors, that will not be a hindrance to their allowability. Indeed, it means that the company will be able to repay the director in respect of amounts owed to the director at a later date without the director suffering any personal income tax on such payments.

[grumbas]

Thanks Eric, sounds pretty much as I hoped, otherwise it could be a bit of a hit later on!

By formation expenses I presume you mean whatever fee companies house levy, and if using an agent their fees too?

[Eric Mc]

grumbas said:

Thanks Eric, sounds pretty much as I hoped, otherwise it could be a bit of a hit later on!

By formation expenses I presume you mean whatever fee companies house levy, and if using an agent their fees too?

Correct - and related legal fees, if any (for instance, you might incur legal costs in sorting out a shareholders' or directors' agreement).

[grumbas]

Eric Mc said:

grumbas said:

Thanks Eric, sounds pretty much as I hoped, otherwise it could be a bit of a hit later on!

By formation expenses I presume you mean whatever fee companies house levy, and if using an agent their fees too?

Correct - and related legal fees, if any (for instance, you might incur legal costs in sorting out a shareholders' or directors' agreement).

Ah yes, hadn't thought about that, I presume for a straight-forward even split scenario you can pick something up off the shelf to keep costs down?

[Eric Mc]

You probably can - but it's not my area of knowledge.

[Super Bad]

grumbas said:

I presume for a straight-forward even split scenario you can pick something up off the shelf to keep costs down?

Yes that is known as a Ready made Company (Ready Made Companies are already set up and so are ready to be transferred over to you)

[Eric Mc]

Super Bad said:

grumbas said:

I presume for a straight-forward even split scenario you can pick something up off the shelf to keep costs down?

Yes that is known as a Ready made Company (Ready Made Companies are already set up and so are ready to be transferred over to you)

I assumed the question was about "ready made shareholder/director agreements rather than ready made limited compoanies.

(I could be wrong).

[Super Bad]

Oh, I think I may have misunderstood the question, I thought it was regarding ready made limited companies (i'll get my coat and leave)

Edited by Super Bad on Wednesday 4th February 17:44

[Windsorphil]

I would be careful about skimping on share agreements and directors service agreements, you may want to give yourselves some additional rights as founders, especially if you may want to get others involved or investing.

In my mind a good lawyer and accountant are invaluable as they can help you avoid problems later and may give you some good advice on the way, too.

[grumbas]

Thanks for the input guys, much appreciated. I'll have a look into ready made companies as that sounds like the easy answer.

The venture will be a cottage industry at best and occupy very little of our time, but we want the protection offered by trading as a limited company.