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Can I claim for pre-trade expenses?

Updated on 14 April 2023

Self-employment

On this page, we discuss pre-trade expenses and how you go about claiming tax relief for them.

Illustration of hands holding bills and paperwork

What are pre-trade expenses?

Pre-trade expenses are those that you pay out before you start trading. As a general rule, trade cannot commence until you are:

  • in a position to supply the goods and services that your business will provide (for example you have bought some stock); and
  • you do provide, or offer to provide, the goods and services to your customers.

However, to get to the point of being able to start trading you are likely to have spent money on things necessary for your business such as buying equipment, buying stock, paying rent for premises, getting insurance, advertising. These expenses are likely to be pre-trade expenses.

Pre-trade expenses can also include items that you owned privately that you will now use in your business. There is an example showing how you can include equipment that you have pre-owned privately in your accounts and Self Assessment tax return in the Case Study (page 33) in our Self-employment guide.

Pre-trade expenses, as with other expenses, can either be revenue expenses that are deductible when working out your profit or capital expenditure. You can read about the difference between revenue and capital expenditure if you are not sure.

Can I claim for pre-trade expenses?

If the expenses were incurred within seven years of you starting to trade, and the expenses would have been tax-deductible if you had incurred them while you were trading, then you can treat them as if they were incurred on your first day of trading and so claim them in addition to the other business expenses relating to the first period of trading.

Example

Brian starts trading as an electrician on 1 June 2023. He had 500 leaflets printed to advertise his services in March 2023. The cost of these leaflets will be treated as a separate pre-trade deduction from his profits in the first accounting period. This is because such advertising costs would normally be deducted from his trading profits had he paid for them after he started trading and they were incurred within seven years of trade commencing.

Example

Amelia starts her business running a coffee shop on 1 August 2023. She had to pay legal costs in July 2023 in connection with signing a 99-year lease for the shop. She will not be able to claim the legal costs as pre-trade expenses for income tax purposes because such expenses would not normally be deducted from trading profits as they are capital costs.

Once I deduct pre-trade expenses my results show a loss. What happens to the loss?

You can read about this on our page What if I make a loss?.

I incurred costs before I began trading that were capital costs. Can I get any tax relief?

If you incur capital expenditure, on assets that will be used in your trade, before trading starts, the expenses are treated as being incurred on your first day of trading. The tax treatment of these capital costs will depend if you are using the accruals basis or cash basis to prepare your accounts. If you are using the cash basis then you may be able to claim these as a business expense and if you are using the accruals basis you may be able to claim capital allowances.

Example

Giovanni buys shelving for his shop on 3 March 2023, but does not start trading as a florist until 1 May 2023. He will be treated as buying the shelving on 1 May 2022 and can claim capital allowances on the cost of the shelving (as long as he has not elected to use the cash basis). If Giovanni has elected to use the cash basis then the cost of the shelving is treated as incurred on 1 May 2023 and Giovanni can claim the cost as a business expense.

Where can I find out more information?

Our guide to self-employment is intended to supplement the material in this section. We wrote this guide to help advisers (non-tax) who advise low-income self-employed individuals and also for self-employed people who want more detailed information in one accessible place. The guide explains the less common tax rules and contains more detailed information including a case study showing how to prepare accounts and what to include on your 2022/23 tax return such as how to treat pre-trade expenses and using the cash basis.

Tax guides

Introduction to the tax system How do I work out my tax? What income is taxable? What tax allowances am I entitled to? What tax rates apply to me? How is my tax collected? What if I cannot pay my tax bill? Do I need to complete a tax return? Self Assessment: understanding the basics What is Simple Assessment? How do I claim tax back? How do I claim back tax I have overpaid through PAYE on wages or pensions? How do I claim back tax if I complete a tax return? How do I claim back tax if I am taxed under the Construction Industry Scheme (CIS)? How do I claim back tax on savings income? How do I claim a marriage allowance refund? How do I claim back tax on a payment protection insurance (PPI) pay-out? Should I use a tax refund company? What is National Insurance? How do I get a National Insurance number? What are Specified Adult Childcare credits? What is Scottish income tax? What is devolution? Do I have to pay Scottish income tax? How does Scottish income tax work? What is Welsh income tax? Do I have to pay Welsh income tax? Do I have to join a pension scheme? Tax relief on your pension contributions HMRC digital services Enquiries, penalties, appeals, complaints and debt Enquiries How to survive an enquiry by HMRC Tax penalties Tax appeals Alternative Dispute Resolution How do I complain to HMRC? What if I cannot pay my tax bill? What if I have a tax credits overpayment?
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