How do you claim for your pre trading business expenditure?
First of all, it may be expensive when you set up a new company or business. Therefore, it is important to make sure that you are aware of pre trading business expenditure and what you can claim.
Besides, whether you are a sole trader or you have your own company, you are likely to have spent a fair amount of money to get your business off the ground. It could be the situation, even before you make your first sale or start to provide your services.
Business set up costs, known as ‘pre-trading business expenditure,’ might be quite a lot, and the good news is that you may be able to claim for these as business expenses. Indeed, if you can claim, they will be set off against tax when you file your first year’s set of accounts.
I have a first timer’s guide to contracting in the UK which gives a full overview of what to consider when you start out. There also some key differences to consider when looking at the differences between contracting to freelancing in the UK which are worth looking at.
Have a read of my article covering tax tips for contractors for handy tips you should know when you have your own business (this is a member only article and you can read it if you sign up as a member). This includes my latest advice for best tax planning ideas.
What is pre trading business expenditure?
Pre-trade expenses are those that you pay out before you start trading. As a general rule, trade is unable to commence until you are:
- in a position to supply the goods and services that your business will provide (e.g., you have bought some stock); and
- in a position to provide or offer to provide the goods and services to your customers and clients.
What does pre trading business expenditure include?
Typical expenses for a small business or contractor, in general, could include:
Furthermore, when you claim any pre-trading expenses, they will need to be wholly and exclusively for the trade.
Claiming for your pre trading expenditure
Once the business has started to trade, you can set off your pre-trading expenditure against your profits. You can treat these expenses as though they were on the first day that you began trading.
What’s more, if you become registered for VAT as many contractors do, you can also reclaim the VAT element of:
- any goods or products that you bought in the prior four years; and
- any services that you incur up to six months before the start of trade
Please see VAT notice HMRC VIT32000 for more details about reclaiming VAT on pre-trading expenses.
It is important to know how the above works when you are starting your own business. I hope this was a good read and will help you if you are starting your business.
Link to Contractor Advice UK group on