We’ve lately been asked by a number of new clients about how claiming pre-trade tax expenses works.

Before your business begins trading it is likely that numerous expenses would have been incurred to help get it off the ground. This can be anything from buying equipment to advertising costs, all of which can be classed as pre-trade expenses.

The HMRC are only interested in the date your business commences trading. This will be when you’re able to supply the goods or services intended and are in a position to accept payment for them. For example, the opening of your shop doors to the public, or the day your website is launched.

The business start date can differ for sole traders and limited companies. This can depend on the point your accounts are used for the first time, to the start and end dates of the tax year (April to April).

Examples of pre-trade expenditure

Practically any goods or services which are purchased for use by the company can be classified as pre-trade expenses. In some cases, even privately owned items can be included in this bracket, but only if they’re being used in the business model.

Some examples of pre-trading expenses include:

  • Purchase of equipment
  • Rental costs
  • Advertising costs
  • Travel and accommodation costs
  • Insurance policies
  • Telephone and internet connections

Claiming pre-trade tax expenses

Pre-trading expenses can be included from up to 7 years before trading commences, although some business owners may not be aware that this only applies for corporation tax.

For VAT purposes, the time zone is reduced to 4 years for products which relate to the company. For services, this date is only 6 months before trading commences. The HMRC page VIT32000 outlines these regulations in further detail.

Further advice

The best advice if planning on claim relief on your pre-trade expenses is to keep meticulous records from the get-go. This way, you will have matching receipts, invoices and bank statements that relate to the company and rule out personal use.

If unsure about what can and can’t be claimed as pre-tax expenses then be sure to hire an accountant or financial advisor who can guide you through the process. For amateur business owners, this is often the case due to the minefield of regulations to sift through.

This is where we’re happy to step in and offer our services. If you’re looking for advice on claiming pre-trade tax expenses feel free to get in touch today via phone or email here.