Pre Start Up Costs – What are they & what can I claim?

Starting your own business is a scary step. Whether it’s a profession you’re familiar with or completely new territory the decision to make the move into self-employment is daunting.

Before you start your business one of the things that could be on your mind will be pre start-up costs. What are they? What can I claim for?

Hopefully this blog will help answer some of those questions.

Whether you are starting a limited company or are a sole trader the pre-trading expenditure is treated as if was incurred on the first day of trading.

The first day of trading can vary from business to business but it is usually on or before the first invoice is issued or first payment is received. However, there are some exceptions, for instance, if a trainer delivers a course and then invoices after the course the business start date would be prior to the first invoice date.

But what can you use in your pre-trade expenditure? It is important to remember, and always keep at the forefront of your mind, that is anything that has been purchased wholly and exclusively for the use of the business.

Most of the time these purchases will be made shortly before you begin trading but the purchases can range back up to seven years prior to the commencement of trade.

The most obvious example of pre start-up costs would be stock, advertising and equipment for the business. However, there are some lesser thought of examples of pre-trade expenditure which can include rent, heat, light and mileage. Although this list is not exhaustive it gives an idea of what you can claim for.

What if I want to use my laptop for the business? You can do this. If your laptop has been previously used on a personal basis, this can be transferred across to the business at its current market value. There are a variety of sites where you can get an idea of how much items are currently worth. This method can be applied to other items that you have previously used on a personal basis such as printers.

It is worth bearing in mind that you will not be able to claim the full annual investment allowance (AIA) on profits before tax. Instead you would need to claim a writing down allowance (WDA) For more information on capital allowances, writing down allowances and how to calculate them visit www.gov.uk/work-out-capital-allowances.

It is also worth remembering that capital expenditure is generally not allowed to be included in pre-start-up costs unless you have purchased equipment, this can be included.

As well as being able to see how much you could offset against any profits, by sitting down and calculating your pre-start up costs you will be able to see how much it will cost to start the business that you dream of.  

Although this blog is designed to give an overview of pre start-up costs, many of them will be specific to the trade that you are looking to start a business in.

If you require any more help or support in calculating your pre start-up costs it would be worth speaking to an accounting professional such as a bookkeeper or accountant.

VAT – Do I need to register my business?

One of the most commonly confusing and daunting topics among business owners is VAT registration. In our many years of practice as bookkeepers, we have dealt with a large clientele and the question that very often arises is whether registering for VAT is the right decision for their company.

Even though for some companies VAT registration is compulsory by the law, for others it’s a voluntary decision, which means that in reality it’s a matter of good timing and getting smart legal and tax advice for your company. Having that said, in order to come to the right conclusion it is important not only to know your company’s needs and profits, but it is also crucial to understand the impact of this decisionon your business.

If your business’ VAT taxable annual turnover is more than £85,000, then you must register for VAT with HM Revenue and Customs (HMRC). And once you are registered, they will send you a VAT registration certificate, which will confirm your VAT number, the dates when you will have to submit your first VAT return and payment, along with your ‘effective date of registration’, which is the date you went over the threshold, or the date you asked to register if it was voluntary.

This is a very straightforward procedure for your company if it meets the VAT registration threshold of the £85.000, but the challenge begins if you are a small business owner or a start-up company and you are trying to figure it out what is the best course of action for you.

Every company is different and every company owner needs to be advised accordingly. It’s a bookkeeper’s duty to be able to advise his clients for the best of their interest. Registering for VAT should be considered very thoroughly as it can have permanent implications for the financial health of your company.

One of the main reasons why you should consider registering for VAT voluntarily is reclaiming VAT that you have been charged by other companies. As a VAT registered company you are legit to claim back VAT charges, as long as your input tax doesn’t exceed your output tax. Moreover, being a VAT registered firm can be beneficial for improving your business profile. Potential collaborators and clients will consider you as a large and well established company.

In spite of the benefits, one should also consider the downsides of being a VAT registered business owner, especially for small companies or start-ups. You might end up with higher costs and there will be an increase of paperwork. Your company needs to follow specific procedures and be on time on your payments, as penalties do apply.

There is no doubt that registering your company is a substantial change for your business. And there are plenty of questions that we are more than happy to answer and help you with. As a bookkeeping company we are here to advise you which are the best solutions for your own business and assist you throughout the whole process, while ensuring that a VAT registration is the right financial decision for you.