Claiming Start-up Expenses

Clawing back startup costs from your new business

By Emma Meakin

Starting up a new enterprise isn’t always cheap and costs appear form avenues you may have never anticipated, but be warned not all are reclaimable.

Know your target audience

When starting a business, it is key to know your audience, from the coffee fuelled corporate suit to the cake baking stay at home parent, each will have a different need that your business may answer. But finding your niche market isn’t cheap! From market surveys to developing the ever demanded prototype, expenses mount up and you end up out of pocket. But there is a silver lining to the deluge of invoices - the expense claim.

Have you incurred a business cost?

You may have had that eureka moment and been inspired to create the next big thing. You’ve done the research, made the prototype and have the drive to make it work but the result is a large bill and you want your money back. Be warned you may not have a claim, sorry to pop the expense claim bubble, but the incurred expense must belong to an active company.

The key issue for the taxman - the ever present black cloud in our lives - is that the expenses constitutes a real business cost. Any start-up costs, from market research to incorporation fees, even though incurred prior to the company’s incorporation is treated as a day one expense. Therefore to claim back your cash, your expenses must result in that eureka moment taking the form of an incorporated company.

Has it been 7 years?

You’ve past the first hurdle, but here comes the next, have you claimed within 7 years of the company’s incorporation? Whilst this seems like a long and distant deadline, with all the additional paperwork and red tape of starting a business, combined with fears about profitability this deadline may loom sooner than you think. Initial start-up stress means making the claim can be pushed to the back of your mind.

But never fear, the deadline allows for a claim when the company is soaring. There are a few handy things I can suggest to ensure you make the deadline. Firstly, keep receipts, I would suggest ensuring these don’t disappear in a mountain of paperwork and have them easily accessible. Why not take the time and place these in a folder, which can be tucked away on a shelf labelled start-up expenses? It’s a 5 minute job but I am sure it’s one many people won’t think to do. Secondly, why not set a diary prompt to remind you to claim after a suitable period of time trading? May I suggest 6 months to a year? This should allow early teething problems to be resolved and the company to on a stable footing.

One last hurdle

The expense must be incurred wholly and for the purpose of your business or trade to be tax deductible. Whilst you may have carried out various market tests and have received the large bill, however if they did not relate in some way to the incorporated company then you will not be able to claim the expense. It is key that you can show a relationship between your incurred expense and your business. This can be as simple as showing that you needed to speak to a group of people to allow you to know your niche audience.

Finally, you’ve cleared all the hurdles, it is time to make the claim. Remember the sooner you claim the sooner your hard earned cash is returned.