# Questions on director loan refunds from revenue



## ivorystraws (19 Apr 2012)

Hi,

I am currently a sole trader and testing a business idea to determine whether it's viable or not. 



Can someone please clarify whether it's 2 years or 4 years that someone who has been attempting to start a business can claim all expenses/investments incurred (which are directly related to the business) back from the revenue?
I'm assuming the reason the revenue provides these tax rebates is because they were directors loans to the business?
Can these expenses, which were directly related to this new business, only be claimed when the business is incorporated as a limited company as opposed to a partnership or sole sole trader?
Are these expenses reimbursed in the form of a cheque from the revenue or credited directly to a business account?
I have compiled a list of all expenses incurred and have all related receipts so just wondering the best way to proceed?

Thanks for any helpful responses.


----------



## ivorystraws (20 Apr 2012)

Should I just direct these questions to an accountant? I attended a seminar some time ago and an independent accountancy firm claimed that that can complete all the relevant filings on behalf of a new startup in order to help provide initial investment. Do accountancy firms do this?


----------



## 44brendan (20 Apr 2012)

It appears that none of the practising accountants, who use this forum have viewed your posting. All accountants should be well acquained with the details of the tax implications mentioned in your OP. You need professional advice on this & should seek recommendations for a good accountant in your area.


----------



## ivorystraws (20 Apr 2012)

44brendan said:


> It appears that none of the practising accountants, who use this forum have viewed your posting. All accountants should be well acquained with the details of the tax implications mentioned in your OP. You need professional advice on this & should seek recommendations for a good accountant in your area.



Ha, you're right... it does seem that none of the practicising accountants who use this forum have viewed my posting yet... very strange indeed. Perhaps it's a question only a very limited number of tax experts can answer!? All accountants "should be* well acquainted with what I'm asking but I wanted to get as much advise from as broad a range of independent sources before approaching a highly recommended accountant. 

I know it's possible for someone who has been testing/researching/investigating the viability of a business and has invested money into it, that they are entitled to a tax rebate if they have the receipts/invoices and the purchase directly relates to the business.... I'm simply asking for some clarification on this. 

Someone should be easily able to answer this question.... otherwise, what's the point in "Asking about business" here?


----------



## mandelbrot (20 Apr 2012)

ivorystraws said:


> Ha, you're right... it does seem that none of the practicising accountants who use this forum have viewed my posting yet... very strange indeed. Perhaps it's a question only a very limited number of tax experts can answer!? All accountants "should be* well acquainted with what I'm asking but I wanted to get as much advise from as broad a range of independent sources before approaching a highly recommended accountant.
> 
> I know it's possible for someone who has been testing/researching/investigating the viability of a business and has invested money into it, that they are entitled to a tax rebate if they have the receipts/invoices and the purchase directly relates to the business.... I'm simply asking for some clarification on this.
> 
> Someone should be easily able to answer this question.... otherwise, what's the point in "Asking about business" here?


 
Ah come on now, you're being a tad impatient, sure the thread isn't even 24 hours old yet!

I would imagine most good practising accountants are fairly busy (even in a recession), and their main priority is on doing the job that pays them, rather than dishing out free professional advice on here! So you may just have to wait until someone with the requisite knowledge feels inclined to respond...


----------



## smeharg (20 Apr 2012)

I'm a practising accountant and frankly I had difficulty decipering your query. However, your subsequent posts have clarified the matter somewhat.

I think what you're talking about is the Seed Capital Scheme.  The relief is available for investment of new shares in a newly formed company subject to certain requirements.  You need to form the company, invest in shares in the company, then the company undertakes the research. Search for IT15 on the Revenue website.

Presumably, you now have invoices made out to you personally.  I don't think there's much you can do about those now, but you'll need to seek proper professional advice in order to have the situatiuon assessed properly.

The moral of the story: speak to an accountant BEFORE acting!


----------



## ivorystraws (20 Apr 2012)

mandelbrot said:


> Ah come on now, you're being a tad impatient, sure the thread isn't even 24 hours old yet!
> 
> I would imagine most good practising accountants are fairly busy (even in a recession), and their main priority is on doing the job that pays them, rather than dishing out free professional advice on here! So you may just have to wait until someone with the requisite knowledge feels inclined to respond...



There hasn't been any response by anyone until 44brendan highlighted exactly what is happening so "ah come on now" is irrelevant i.e. the facts are simply being pointed out, it's not me being impatient.

You would imagine that most practicing accountants are fairly busy.... so you would imagine that since the time the thread was posted, there has been no practicing accountants on this forum giving advice on others threads? I doubt that as there's lots of helpful advice posted on this forum all the time by qualified professionals.

You would imagine that no practicing accountants "dishing out" advice on no other threads on this forum? Is that what you view this forum as... a place that people go to get professional advice "dished out" for free? That maybe the case for some people but I find it a valuable community of like-minded people to discuss, share and comment on pinons and questions. Some people do just want to help you know. 

I don't just "have to" do anything until someone else feels inclined to act.... it's simple, I'll go to another forum and ask the same question and contact accountants over the phone and get the answer in writing. It's easy and that simple. I'll post the answer back here on this thread when I have it in writing and verified that it's correct. 

That advice will be invaluable for another other startup business in need of initial funding/financing.


----------



## ivorystraws (20 Apr 2012)

smeharg said:


> I'm a practising accountant and frankly I had difficulty decipering your query. However, your subsequent posts have clarified the matter somewhat.
> 
> I think what you're talking about is the Seed Capital Scheme.  The relief is available for investment of new shares in a newly formed company subject to certain requirements.  You need to form the company, invest in shares in the company, then the company undertakes the research. Search for IT15 on the Revenue website.
> 
> ...




Thanks for your response smeharg and you probably have a valid point. Maybe I wasn't clear enough in what I'm asking.

The business is not yet formed as a legal entity. I'm testing a business to determine whether it's viable. I have spend a small sum of money on that business. I'm simply asking how I go about getting that investment money, that I've spent on the business, back, once it is incorporated?

I'm definitely not referring to the Seed Capital Scheme.

Invoices made out to me personally can be expensed whether I had the business formed or not.


----------



## WindUp (20 Apr 2012)

Open to correction here but normally when pre-trading expenses are incurred by a director prior to the incorporation of a company- they go into Directors loan a/c on incorporation and the company repays the director from its profits.

allowable pretrading expenses can be deducted from the taxable income of the company for Corporation tax purposes
Examples of pre-trading expenses are:
• Accountancy fees
• Advertising costs
• Costs of feasibility studies
• Costs of preparing business plans
• Rent paid for the premises from which the trade or profession operates.

Are you asking if there is relief available from the Revenue commissioners to you personally whether the business goes ahead or not? the seed capital scheme is the only one I am aware of.

Disclaimer - I dont work in practice!


----------



## smeharg (20 Apr 2012)

Okay. 

Firstly, Revenue won't give you anything back unless you have paid tax and can claim some sort of relief (such as seed capital relief) to entitle you to a refund of that tax. 

Secondly, the company *MAY* be able to reimburse you for expenses you incur personally on behalf of the company.

You refer to a time limit of 2 or 4 years.  Are you thinking of pre-trading expenses which can be incurred up to a maximum of 3 years prior to the commencement of the trade?


----------



## ivorystraws (20 Apr 2012)

WindUp said:


> Open to correction here but normally when pre-trading expenses are incurred by a director prior to the incorporation of a company- they go into Directors loan a/c on incorporation and the company repays the director from its profits.
> 
> allowable pretrading expenses can be deducted from the taxable income of the company for Corporation tax purposes
> Examples of pre-trading expenses are:
> ...



Hi WindUp,

Thanks for your response and yes, I am referring to pre-trade expenses incurred by me but I won't be a director until the company is incorporated. 

I wasn't aware that those expenses go into into a Directors loan a/c on incorporation and that the company repays the director from its profits. 

I'm asking whether there is relief available from the Revenue commissioners to me personally only in the situation when the business becomes a limited company as I was led to believe this was the case from accountants who detailed this as one of their services at a business seminar I attended some time ago (I am trying to track down those accountants to get clarification).


----------



## Gervan (20 Apr 2012)

Since you seem to be looking for refund of past income tax to yourself, I am sure it is the Seed Capital Scheme you are thinking of. There is a lot to read in the Revenue IT15 leaflet, as Smeharg suggested, but I think there may be changes in 2012. Still, it will clarify the background for you.
http://www.revenue.ie/en/tax/it/leaflets/it15.html


----------



## ivorystraws (20 Apr 2012)

smeharg said:


> Okay.
> 
> Firstly, Revenue won't give you anything back unless you have paid tax and can claim some sort of relief (such as seed capital relief) to entitle you to a refund of that tax.
> 
> ...



Yes, I personally paid tax on those business related purchases but it's not related to the seed capital relief scheme as doesn't that mean that any investment would have to be made after the company has been incorporated?

The company would only be able to reimburse me when it's incorporated and officially trading and is generating some amount of turnover - but I'm referring to reimbursement of business expenses that occurred pre-incorporation.

Yes, I am thinking of pre-trading expenses which can be incurred to a maximum of 3 years prior to the commencement of the trade. This is what my question is based around. Thanks.


----------



## ivorystraws (20 Apr 2012)

Gervan said:


> Since you seem to be looking for refund of past income tax to yourself, I am sure it is the Seed Capital Scheme you are thinking of. There is a lot to read in the Revenue IT15 leaflet, as Smeharg suggested, but I think there may be changes in 2012. Still, it will clarify the background for you.
> http://www.revenue.ie/en/tax/it/leaflets/it15.html




Thanks but no, I'm not referring to the Seed Capital Scheme (not intentionally anyway). I came across this thread which does seem similar (in parts to my current situation). In that thread, DB74 states that "_If you are a sole trader, then you can offset a trading loss against other income earned in the same year of assessment and potentially get a PAYE refund._"

That would seem to match what those accountants claimed they could do for new startups and business owners.


----------



## DB74 (20 Apr 2012)

I wouldn't be 100% sure that pre-trading expenses incurred prior to the formation of a limited company can be paid back to someone who incurred those expenses personally. The expenses have to be incurred by the limited company in the first place for them to be allowable, which is obviously not the case if the company hasn't even been formed yet.


----------



## DB74 (20 Apr 2012)

ivorystraws said:


> Thanks but no, I'm not referring to the Seed Capital Scheme (not intentionally anyway). I came across this thread which does seem similar (in parts to my current situation). In that thread, DB74 states that "_If you are a sole trader, then you can offset a trading loss against other income earned in the same year of assessment and potentially get a PAYE refund._"
> 
> That would seem to match what those accountants claimed they could do for new startups and business owners.



A limited company is totally different because they are taxed under different tax headings, ie Income Tax and Corporation Tax. So expenses incurred by a director on behalf of a limited company cannot be offset against other income in order to get a tax refund, they can only be re-imbursed by the limited company.


----------



## smeharg (20 Apr 2012)

ivorystraws said:


> Thanks but no, I'm not referring to the Seed Capital Scheme (not intentionally anyway). I came across this thread which does seem similar (in parts to my current situation). In that thread, DB74 states that "_If you are a sole trader, then you can offset a trading loss against other income earned in the same year of assessment and potentially get a PAYE refund._"
> 
> That would seem to match what those accountants claimed they could do for new startups and business owners.


 
You can offset the loss of a sole-trade against PAYE income arising in the same year only.  

You'd do this when you file your annual tax return.



DB74 said:


> I wouldn't be 100% sure that pre-trading expenses incurred prior to the formation of a limited company can be paid back to someone who incurred those expenses personally. The expenses have to be incurred by the limited company in the first place for them to be allowable, which is obviously not the case if the company hasn't even been formed yet.


 
Which is precisely why I put "may" in big bold italic letters!


----------



## smeharg (20 Apr 2012)

ivorystraws said:


> Yes, I personally paid tax on those business related purchases


 
Do you mean VAT? Do you want to reclaim the VAT paid?


----------



## ivorystraws (20 Apr 2012)

smeharg said:


> Do you mean VAT? Do you want to reclaim the VAT paid?



No, I don't necessarily mean VAT (although it's probably inherent in most purchases in some form)... tax is just a catch all because I've purchased products/services for this business worldwide.


----------



## ivorystraws (20 Apr 2012)

DB74 said:


> I wouldn't be 100% sure that pre-trading expenses incurred prior to the formation of a limited company can be paid back to someone who incurred those expenses personally. The expenses have to be incurred by the limited company in the first place for them to be allowable, which is obviously not the case if the company hasn't even been formed yet.



This is getting to the crux of the matter. Can pre-trading expenses incurred prior to the formation of a limited company can be paid back to someone who incurred those expenses personally, even if those expenses (some of which are recurring) are directly related to the business? 
So basically, let me try to get some clarification, whatever costs I have incurred personally to date, on behalf of the business (which is not yet incorporated) are lost and useless even if I do incorporate?


----------



## Jonny (21 Apr 2012)

Correct


----------



## mandelbrot (23 Apr 2012)

ivorystraws said:


> You would imagine that most practicing accountants are fairly busy.... so you would imagine that since the time the thread was posted, there has been no practicing accountants on this forum giving advice on others threads? I doubt that as there's lots of helpful advice posted on this forum all the time by qualified professionals.
> 
> You would imagine that no practicing accountants "dishing out" advice on no other threads on this forum? Is that what you view this forum as... a place that people go to get professional advice "dished out" for free? That maybe the case for some people but I find it a valuable community of like-minded people to discuss, share and comment on pinons and questions. Some people do just want to help you know.


 
I said I imagined that most GOOD practising accountants are fairly busy.
This forum is many things, and there's no doubt that plenty of good (and bad) professional advice is dispensed here. (My posting history speaks for itself, and I've also gladly helped lots of people via PM. Your posting history shows you only ever contribute to threads you've started... so you can't exactly hold yourself out as one of those people who just want to help!)



ivorystraws said:


> I don't just "have to" do anything until someone else feels inclined to act.... it's simple, I'll go to another forum and ask the same question and contact accountants over the phone and get the answer in writing. It's easy and that simple. I'll post the answer back here on this thread when I have it in writing and verified that it's correct.


 
That first sentence sums up for me the difficulty of trying to deal with you - I'm pretty sure you mean "I don't just have to do nothing", which is the opposite of what you said. Your OP on this thread was fairly impenetrable - I was half wondering if maybe I was being dense, but thankfully Smeharg didn't really get the jist of it either. Maybe that's why it took a while for you to get responses.

Anyway, now that it's clear what the question is, and having had time to look at it, the issue and the answers are very simple. Relief is allowed under Section 82 TCA '97 for expenses incurred in the 3 years prior to commencement of a trade. Expenses that will be allowed as pre-trading expenses, will be expenses that would be allowable expenses in the normal course if the trade had commenced when they were incurred. ([broken link removed])

The relief operates by treating the pre-trading expenses as if they were expenses incurred on the date the trade commenced. Section 82 specifically states that the expenditure must be incurred by the same "person" (applies equally to a company or individual) who sets up and commences the trade. The easiest way for you to get the benefit of this expenditure is to commence the trade as a sole trader, and subsequently incorporate it. The moral of the story remains the same - go and get professional advice.


----------



## ivorystraws (24 Apr 2012)

Jonny said:


> Correct



Perfect Jonny, that saves me a lot of time and effort! Appreciate the clarification, thanks.


----------



## WindUp (24 Apr 2012)

DB74 said:


> I wouldn't be 100% sure that pre-trading expenses incurred prior to the formation of a limited company can be paid back to someone who incurred those expenses personally. The expenses have to be incurred by the limited company in the first place for them to be allowable, which is obviously not the case if the company hasn't even been formed yet.


 
i just had a quick search there on askaboutmoney and this was the accounting treatment proposed as well at the time
http://www.askaboutmoney.com/showthread.php?t=69587

i cannot think of why it would not be permitted under IE GAAP

as for claiming these expenses as an allowable expense against CT - again I do not see an issue as long as they fill the requirements of being allowable


----------



## mandelbrot (24 Apr 2012)

WindUp said:


> i just had a quick search there on askaboutmoney and this was the accounting treatment proposed as well at the time
> http://www.askaboutmoney.com/showthread.php?t=69587
> 
> i cannot think of why it would not be permitted under IE GAAP
> ...


 
Well they'll only be allowable if allowed under S.82 as pre-trading expenses. 
As I stated above, in order to be allowable under S.82 they would have to have been incurred by the same "person" who commences the trade.
Since the company which the OP intends will conduct the trade doesn't actually exist yet, it can't incur anything.
Hence the OP is snookered, and commencing as a sole trader is the only viable means of validly ensuring relief.


----------

