Setting up a business – what costs can I claim? When you set up a new business there will always be costs incurred before you start to trade.
However, what pre trading costs are you allowed to claim and will you receive tax relief for them?
There are special rules for pre trading expenditure and generally you will incur a number of costs when starting a business such as, trying to find premises, purchasing equipment and stock, insurance, website development expenditure etc, etc.
The general rule states that pre-trading expenditure is treated as though it was incurred on the first day of trade. So for example, if you have incurred costs on your stationery then this expenditure will be deducted from your turnover and for expenditure on equipment you would make a claim for capital allowances that would reduce your taxable profits accordingly.
How far can you go back before you start to trade? HMRC will consider allowing you to look at pre-trading business costs going back 7 years before you commence to trade.
You do need to be careful with certain types of expenses. For example if you paid for rent in advance for office accommodation that related to the next 24 months then you would apportion these costs over the appropriate period i.e. not treat it as a pre-trading expense.
If you borrow money to finance your new business before it commences to trade and you incur interest charges then you do have to careful. Pre-trading interest incurred by companies may fall under the loan relationship rules which generally states that the interest you have paid can only be set-off interest you have received. However, the good news is that the company may be able to elect to treat the interest paid as a pre-trading expense and obtain tax relief in the same way as other pre-trading expenses.
So you have taken the first most exiting (or daunting!) move of starting your business. Always make sure you consider our 4 1/2 steps of a successful business which includes: Vision statement, 3 key concepts, time blocking and a 12 week business strategy plan. Please feel free to go to our website to find out more details.
If you would like to discuss any of the points above then please do send us an email to: firstname.lastname@example.org