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Pre Trading Expenses - Paid Personally

Hello there,

What is the best way to put through expenses that were paid prior to opening the company bank account that were paid using personal funds? Should this be entered as usual expense but instead of crediting the bank account it credits the directors loan account?

Would this then mean the company owes me money and in future when funds allow I can transfer that amount back to me tax free?

Kind regards
Darren

Were these purchases made before or after the company was incorporated?

If the company existed when the purchases were made, then they’re purchases made by the company but funded using money lent to the company by the director, so yes, you log payment on those purchases from the director’s loan account and the company can pay you back later.

If the purchases were made before the company existed then they weren’t made by the company, they were made by you as an individual. Post incorporation you could choose to re-sell the items to the company at their present market value, but that would be a new purchase by the company from you, not from the original supplier. That purchase could of course also be funded by a director’s loan and paid back later.

Hi Ian,

Thanks for coming back to me so quickly. It is a mixture of both as waiting for our business bank account to be set up.

There are a few expenses paid prior to incorporation for things such as business insurance, office software. How best to put this through in that case? The insurance and software are not physical items to resell at current value. I was reading online they should be put through at incorporation date?

Kind regards
Darren

I’m out of my depth now, you’ll need to check with an accountant (I’m not one, just a long-time QuickFile user who has picked this stuff up as I went along).

How does one buy business insurance for a company that didn’t exist?

Who’s name is on the insurance?

Presumably yours, so not sure how it’s a business expense.

Hi Paul,

That was a and example, the insurance was taken out once the company was incorporated in the limited company name. Are you able to help for any expenses that were paid by personal card prior to incorporation please such as the office software by chance?

Kind regards
Darren

Ians explanation is spot on

Hi Darren,
Any expenses you paid for personally prior to incorporation can be claimed if they were wholly and exclusively related to the business in question. The reason for putting them through on the date of incorporation, apart from the fact the company didn’t exist before that date, is that this reflects you transferring or “selling” those items to the company on the date of incorporation. As they were incurred presumably shortly prior to incorporation, then their value will not have changed. Hence, you put them at cost to the correct expense code and credit to director’s loan, as you thought.

Thanks Claire! That is how I was thinking to put through. Then once the company has sufficient funds I can pay myself back from the company bank account to my personal and clear the directors loan back to ÂŁ0?

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You’re welcome and yes, that’s correct.

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