What are pre-trade expenses and are they tax deductible?

What are pre-trade expenses and are they tax deductible?

Pre-trade expenses are items and services you purchase before you start trading – usually expenses involved in setting up your business, like buying equipment and stock, rent, insurance, advertising, accountancy fees, setting up your website, buying business cards, etc.

Pre trade expenses can also include items that you own personally, that you now use in your business, for example your computer, printer etc.

Pre-trading expenses should be treated as being incurred on the day trading commences, therefore they are recorded in full and included in your first accounts period and tax return.  As with other expenses they are tax deductible when working out your profit and capital allowances and can be claimed for capital purchases (assets).

You can include pre-trade expenses for up to 7 years before you started to trade.  As long as the expense is classed as tax deductible if you had incurred them while you were trading then you can include them.

Your pre-trade expenses are allowable for limited companies.

If you are also registering for VAT, or are an existing business now registering for VAT then you can also claim for VAT on pre-trade expenses as follows:

  • VAT on goods, stock and assets can be claimed for up to 3 years prior to VAT registration in your first VAT return
  • VAT on services can be claimed for up to 6 months prior to registration. 

If you’d like any further assistance with pre-trade expenses, or to find out how pre-trade expenses can affect your business and VAT returns please visit our Work With Us page where you can complete a quick questionnaire and book a discovery call with us.