Trading before incorporation

Can I change the first accounting period to a date before incorporation?

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We've incorporated on 20 May 2017. However, the first invoice issued to our customer is dated 30 April 2017 with the description of "services during April 2017". Obviously, this is before the incorporation date. I read somewhere that I have 3 months to notify HMRC that I started trading. So when I registered with Companies House, I assumed that this is OK. I have now received a notice asking for accounts from 20 May 2017. Now I am worried that HMRC might penalise me. Any advice? Thank you.

Replies (8)

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Scalloway Castle
By scalloway
12th Aug 2018 13:21

You were a sole trader before the company was incorporated. You have until 5 October 2018 to register as self employed with no penalty.

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By Accountant A
12th Aug 2018 15:23

MariaMaria wrote:

Any advice?

Just the usual. Get an accountant. If you have got confused over this, I'm guessing you've probably got other "issues".

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ALISK
By atleastisoundknowledgable...
13th Aug 2018 08:28

If the company incorporated on 20/05/17, then it didn’t exist before then, so ‘it’ couldn’t have raised an invoice in April.

Does this make sense?

I suggest you follow AS’s standard advice and get an accountant- there’s more going on in your situation than you think.

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paddle steamer
By DJKL
13th Aug 2018 09:21

Either playing a Cher track or watching a Michael J Fox film series might help.

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By bernard michael
13th Aug 2018 09:40

Just to confuse it further did you charge VAT on the April invoice ?
I hope not

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Portia profile image
By Portia Nina Levin
13th Aug 2018 10:33

It seems a number of members could do with reading the Hepburn case:

https://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02837.html

It is possible for a company to have transactions before it is formed.

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By fawltybasil2575
13th Aug 2018 22:02

@ MariaMaria (OP).

As PNL states, it is "possible" for a company to have transactions before the formation date. The Hepburn case to which PNL has kindly provided a link is a very useful read, as it explains the rationale.

That is not to say of course that Hepburn DOES apply in your clients' case - your initial question (certainly no criticism is intended) could usefully be expanded upon with more detail, please.

If you could give an idea of the nature of the business and the amounts at issue (both income and expenses) re prior to the formation date, this would assist.

Did the business start on or around 1 April 2017 ?

Were the customers aware that the work was effectively being carried out by the company ? Is there a contract re that work ?

Perhaps the most important question is WHY was there a time delay between the start of the business and the formation date.

One could ask many more questions: in essence, one is seeking to establish who ALL parties regarded as being the supplier of the services.

On what date was the invoice for the April 2017 work received, and into which bank account was it paid ?

Have 2017/18 Tax Returns been prepared for the proprietors/partners ( you refer to "we", but then later "me", in your question) ? - and, if so, has anything been entered on those Returns re the business ?

As ever, materiality is a key factor. If the net profit pre-incorporation is relatively small, and there are valid arguments both for and against that net profit being treated as part of the company's business, then it MAY probably be acceptable to treat the net profit pre-incorporation as part of the company's business. If so, keeping a copy on file of the Hepburn case judgment is recommended (to ward off any potential HMRC challenge in the future).

Basil.

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By MariaMaria
09th Sep 2018 23:05

Thank you very much for everyone who commented. Especially, to Portia Nina Levin and Fawltybasil2575.

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