Long before you launch your start up and begin making sales, you will probably have begun to incur costs while you try, test and bring your idea to life.  It’s no surprise that you may be wondering whether these early expenses which you probably paid for personally, can be claimed as a business cost so you can claim back the money, reclaim the VAT and get tax relief.  Well, HMRC has issued guidance on this common question.

Pre Trading expenses may include things such as:

  • Insurance;
  • Stock;
  • Computers;
  • Business cards;
  • Accounting fees;
  • Websites design and domains.

The rules state that you can claim back pre trading expenses going back 7 years, which is great news but you must have all the receipts and paperwork to substantiate your claim.  The advantages of claiming these pre trade expenses are:

  • You will receive corporation tax relief;
  • You may be able to record these expenses as being purchases by yourself and be repaid, if business funds allow;
  • You will give yourself a true picture of how your business has performed and its true costs.

It’s worth noting that the cost of Company Formation is not corporation tax allowable, but you will be able to refund yourself for the cost of forming your Company if you paid for it.

If you are registered for VAT, you may also be able to make a claim for any VAT on your pre trading expenses.  The guidelines state that you can go back from the date of your VAT registration as follows:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

We recommend you read HMRC guidance here carefully before claiming back any VAT on pre trading expenses. And if in doubt, always speak to an accountant before making any claims because mistakes can results in penalties and interest.

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