pre-trading expenses

Did you know you can claim for expenses that incurred before you started trading!

Whether you decided to set up as a sole trader, a partnership or a limited company, you’re likely to have spent money getting your venture off the ground, before you have made your first sale.

These business set-up costs, known as ‘pre-trade expenses’ can be substantial. However, the good news is that you may be able to claim back many of these costs against tax when filing your first-year accounts. You can claim your pre-trading expenses in addition to the other business expenses relating to your first period of trading. Some of the pre-trading expenses you may incur may include: –

· Rent

· Stock purchases

· Business insurance

· Travel costs

· Phone and broadband

· Advertising

· Stationery, postage, printing, etc

· Business equipment (such as laptops and PCs)

· Professional costs (such as accountancy and legal fees)

You can claim back pre-trade expenses up to seven years before you start of trading, the expenses are treated as having been incurred on your first day of trading. You also have to ensure they are normal business expenses that would have been tax deductible if you incurred them during current trading, “wholly and exclusively” incurred for the business, rather than for personal use. 

If you register your business for VAT and meet certain conditions, you may be able to reclaim the VAT on costs incurred before VAT registration, of up to:

·       Four years for goods and capital items purchased

·       Six months for services received.

You can also transfer across equipment that you previously used on a personal basis, at the current market value, you will not be able to claim the full annual investment allowance (AIA) on profits before tax. Instead you would need to claim a writing down allowance (WDA).

There are certain rules and guidelines which must be met to reclaim, please get in contact if you need more information. 

Claiming all your allowable expenses will reduce your profit which will reduce the amount of tax you have to pay!