Pre Incorporation expenses

Pre Incorporation expenses

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Can expenses incurred prior to incorporation be included on a personal tax return as a loss?

My client incurred use of home, mileage and mobile phone costs in relation to setting up a restaurant business.  The expensee prior to incorporation, can they be entered onto their personal tax return to create a loss?

Or do they have to be included on the company's corporation tax return?

Any help greatly appreciated?

Replies (10)

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By johngroganjga
29th Oct 2013 13:44

Why make things complicated? 

Why make things complicated?  Client should just claim reimbursement from the company.

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By kedgley
29th Oct 2013 13:48

They have to file a return anyway and have a lot of holiday let income to pay tax on. 

 

the loss would be very useful,

 

The company is not making profits,

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By JCresswellTax
29th Oct 2013 14:11

But the trade

Was that of the limited company, not him personally?

So what basis do you think you have to claim them as an expense on his personal tax return?

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By kedgley
29th Oct 2013 14:52

he set up a business, incurring self employment losses, the business then incorporated.

 

The self employment losses are declared on his personal tax return?

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Replying to aj_cook:
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By tonycourt
29th Oct 2013 16:10

Not clear

John's suggestion is a good one, but if your client isn't interested in that then.....

Because your client operated the business as a self employed individual and is now transferring it to the company the losses can first be set against the self-employed profits (which are none).Therefore  he can carry them forward and set them against his personal tax liability on salary (or dividends if there were any) drawn from the company.

However, I expect what you have in mind is creating an employment income loss equal to the company setting up expenses paid for personally by the client. HMRC's view on this is that a loss can't be claimed unless it has been be paid for out of employment income already received from the company concerned - this is wrong, but their conclusion in my view is right for reasons I won't go into as they are rather convoluted.

I can't see a way, apart from taking income from the company, that the losses/expenses can be used to reduce other tax liabilities. But may be someone else knows a way to do it.

 

 

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By kedgley
29th Oct 2013 16:34

Can the self employed losses be set against the furnished holiday letting profits?

 

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By kedgley
29th Oct 2013 17:05

Thank you so much for everybody's help. 

 

In summary, I could put through pre incorporation expenses as a self employed loss and set this off against the short term holiday lets profit?

 

During the period in question the short term holiday let had been sold, and my client was actively looking for premises for a restaurant

 

Any commments greatfully accepted

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By thehaggis
29th Oct 2013 18:53

Self -employed?

The business was not operated in a self employed capacity. There was no trade until the one started by the Company.

Pre-trading expenses are only allowed if the person incurring them commences to trade.

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By JCresswellTax
30th Oct 2013 10:08

Agree haggis

There was no self-employment!

Its something that was made up after the event to claim the losses in the way you want!

Did you notify HMRC of this 'self employment'?

If you do it, you may get away with it, but its wrong.

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By tonycourt
30th Oct 2013 16:54

Not so cynical

I suspect that the Haggis and JCT are right in their assumption, but I took the OP's comments at face value. Namely;

"he set up a business, incurring self employment losses, the business then incorporated".

In my experience people (clients) present the facts in the way they think will get them the answer they want. So in this instance was that the case with the OP's original post or his later one which quoted above?

As I said I suspect other posters have assumed right. Nothwithstanding my earlier comment, and even after 35 years in tax, I like to assume folks are telling the truth. If they aren't then they have to deal with the consequences. 

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