Can a Ltd Co retrospectively pay for business purchases?

coffeehound

Hello

If one makes business purchases using personal funds before registering a Ltd Co, is it possible to subsequently 'sell' or otherwise transfer those purchases to the Ltd Co?  

I guess the situation might be different for physical assets versus services?

Thanks for any advice

tightauldgit

Yes I think that's exactly what you do. Effectively 'sell' them to the company and account for the purchases. in the case of a service already provided I don't see that there would be an asset to transfer which might cause an issue but they should also generally be deductible from any income tax return you make personally.  . 

coffeehound

Thanks, @tightauldgit.  A service I was considering is a virtual address paid for in advance so it could be used in the companies house register -- would that be directly transferable do you think, or handled through personal tax as you mention?

tightauldgit

I assume that's not a huge amount of money so I doubt however you handle it would raise any alarm bells. I think it is possible to claim direct [re-trading expenses for the Ltd company like this and effectively they are considered to have been incurred on Day One of the company existing. 

uknick

tightauldgit said:

Yes I think that's exactly what you do. Effectively 'sell' them to the company and account for the purchases. in the case of a service already provided I don't see that there would be an asset to transfer which might cause an issue but they should also generally be deductible from any income tax return you make personally.  . 

Why would it be deductible through a personal tax return?  Are you assuming coffeehound is currently a sole trader and completing a self assessment?  You could do it through the company PAYE system but that could involve additional administration and scrutiny by HMRC.  We usually suggest the following.

The way pre-incorporation expenditure is usually dealt with is to treat it as a purchase funded through the director's (I'm assuming in this new business coffeehound is a director) loan account right at the start of the newly created financial year thus;

Debit expenditure
Credit loan account

tightauldgit

uknick said:

tightauldgit said:

Yes I think that's exactly what you do. Effectively 'sell' them to the company and account for the purchases. in the case of a service already provided I don't see that there would be an asset to transfer which might cause an issue but they should also generally be deductible from any income tax return you make personally.  . 

Why would it be deductible through a personal tax return?  Are you assuming coffeehound is currently a sole trader and completing a self assessment?  You could do it through the company PAYE system but that could involve additional administration and scrutiny by HMRC.  We usually suggest the following.

The way pre-incorporation expenditure is usually dealt with is to treat it as a purchase funded through the director's (I'm assuming in this new business coffeehound is a director) loan account right at the start of the newly created financial year thus;

Debit expenditure
Credit loan account

If he's making business purchases and isn't yet a Ltd company then I don't see that he can be anything else than a sole trader and then yes would suggest he could submit a SA return to account for the purchases. 

As I said in my follow-up I did appreciate that there are also methods to account for pre-trading expenses but it wasn't clear if we were talking about an existing business becoming a Ltd and/or how long we were likely to be talking about between purchase being made and Ltd company being set up.