No. The costs of forming and registering a company, such as the Companies House fee, a formation agent’s charge and legal fees for the articles and share structure, are capital and cannot be deducted from trading profits. What a new company can deduct are ordinary revenue costs of getting the trade going, including those incurred up to seven years before trading starts, which section 61 of the Corporation Tax Act 2009 treats as incurred on the first day of trading.

Why are incorporation costs treated as capital?

HMRC’s starting point is that spending on the fundamental structure of a business is capital. At BIM46435 it lists fees likely to be capital, including those for forming and registering a company and for changing a company’s status, for example from limited to unlimited or to a public company. It also asks officers to examine critically any claim that significant fees on a company’s structure or status are revenue.

At BIM35615 HMRC adds that the cost of creating a new company is capital even where the company is set up for the purposes of an existing company’s trade. It relies on J B Kealy v O’Mara (Limerick) Ltd, an Irish case where the costs of incorporating a new holding company were held to be capital because something enduring had come into existence. HMRC accepts Irish decisions do not bind UK courts but sees no reason a UK court would decide differently. Even revenue costs would still have to pass the wholly and exclusively test. For the general tests, see capital or revenue expenditure.

Which costs are on the capital side?

  • Registration fees. Companies House currently charges £100 to incorporate online or through software, £124 on paper and £156 for same day incorporation through software.
  • Formation agent packages covering the registration itself.
  • Legal and professional fees for drafting articles, setting up the share structure and registering the company.
  • Costs of raising share capital. HMRC’s guidance at BIM45801 explains that the special relief for the incidental costs of raising loan finance does not extend to any form of equity finance. Costs connected with changes in status, such as flotation, are normally not deductible either (BIM42510).
  • Abortive costs. At BIM35325 HMRC says spending that would have been capital does not become revenue because the project fails, so fees on a formation or restructuring that never completes stay capital.

The steps involved in setting up the company are covered in how to incorporate a limited company.

What start up costs can a new company deduct?

Section 61 of the Corporation Tax Act 2009 applies where a company incurs expenses for the purposes of a trade before, but not more than seven years before, the day it starts to carry on that trade. If no deduction would otherwise be allowed, but one would be allowed had the expense been incurred on the start date, the expense is treated as incurred on the start date. HMRC’s guidance at BIM46351 and BIM46355 draws out the limits:

  • the expense must be revenue and wholly and exclusively for the trade, so formation costs are not rescued by section 61,
  • stock bought in advance and rent paid in advance are deducted under the normal rules once trading begins, not under section 61,
  • pre trading capital spending on plant and machinery is handled by section 12 of the Capital Allowances Act 2001, which treats it as incurred on the first day of trading,
  • the relief belongs only to the person who incurred the expense and starts the trade,
  • interest and other loan costs before trading fall under the loan relationship rules instead, as section 61(3) provides.

Our guide to pre trading expenses covers the rule in more depth.

What about running costs after the company is formed?

Once the company exists, many company law costs are ordinary annual expenses. HMRC’s guidance at BIM42510 says no objection should normally be raised to deducting ordinary annual expenditure on keeping the share register, printing annual accounts and holding the annual general meeting. The distinction is between one off costs of creating or changing the company’s structure, which are capital, and the recurring cost of running the company that already exists.

How do formation costs show in the accounts?

The accounts and the tax return treat these costs differently. Under Section 18 of FRS 102, ACCA’s technical factsheet explains that expenditure on start up activities, including legal and secretarial costs incurred in establishing a legal entity, is expensed rather than recognised as an intangible asset. Formation costs therefore usually appear as an expense in the first profit and loss account. Because they are capital for tax, they must be added back in the corporation tax computation. HMRC’s guidance on company expenses confirms that only revenue expenses, not capital ones, can be deducted in working out taxable profit.

Does it make a difference if the company takes over an existing business?

No, not for the formation costs. BIM35615 treats the cost of creating a company as capital even where it is formed to serve an existing trade, and BIM46435 lists forming a company alongside forming, varying or dissolving a partnership as structural work. A sole trader who incorporates should expect the fees for setting up the company and transferring the business to be capital. The separate question of tax on any gains when the business moves into the company is covered in incorporation relief.

How would a typical set up be treated?

Illustration only. A founder sets up a consultancy company, which starts trading on 1 June 2026. Before that date the company pays these costs.

Cost Amount Tax treatment
Companies House fee, online £100 Capital, no deduction
Solicitor’s fee for bespoke articles and share classes £1,200 Capital, no deduction
Market research for the new service £600 Revenue; deducted on 1 June 2026 under section 61
Advertising for the launch £400 Revenue; deducted on 1 June 2026 under section 61
Laptop £1,000 Capital allowances, treated as incurred on 1 June 2026

If the accounts expense all £3,300, the computation adds back the £1,300 of formation costs and the £1,000 laptop, then claims capital allowances on the laptop. The £1,000 of research and advertising stays deducted.

What mistakes come up most often?

  • Leaving formation costs in the tax computation because they were correctly expensed in the accounts.
  • Claiming the founder’s personal costs as the company’s pre trading expenses. Section 61 relief belongs to the person who incurred the cost.
  • Deducting the costs of issuing shares to investors. Equity finance costs are not covered by the loan finance relief.
  • Treating a failed formation as revenue. Abortive capital spending stays capital.
  • Going back more than seven years for pre trading costs.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.