Can you claim expenses before a self-employed business starts?

Kirsty Young Freelancers, Startup

It’s quite likely that as a new business owner, you’ll need to buy things to get your business rolling in advance, such as:

    • stock
    • website/s and hosting
  • advertising
  • IT hardware and software
  • etc

These are what’s often known as ‘Pre-trade Expenses’.

However, you may already own some items you wish to use in your business. Can you claim for these in any way?

Small wonder that new business owners like you often worry about losing a tax deduction.

Relax! In this blog, we will cover how pre-trade expenses work for self-employed businesses. (We will do another blog soon regarding limited companies, although some of the concepts are similar).

 

So, can I claim pre-trade expenses against my tax?

The short answer is YES, presuming:

  • The expenses were incurred within seven years of you starting to trade

and

  • The expenses would have been tax-deductible under the normal tax rules for your trade

Presuming the above applies, you can count the expenses as being incurred on the first day that you start to trade.

It should be noted that as per the second ‘rule’ above, some costs won’t be deductible against your profits if they wouldn’t be normally deductible for a similar established business.

Let’s take an example. If you spent money entertaining future prospects, these costs wouldn’t normally be tax deductible. So, they won’t be allowable as pre-trade expenses.

Some might also not be deductible against your profits initially, but might be over time. This is usually because they are ‘capital’ items, i.e. larger purchases such as a car used for business.

 

What about items I already own that I want to use in my business?

Presuming the above conditions apply, you generally can get tax relief on items you bring into use in your new business.

Exactly how you get tax relief may vary in terms of where you put it on the tax return and whether you get full relief in one year. This depends on the cost of the items, and the way you prepare your accounts.

The general principle is that items you use in your business count as costing whatever they would be at ‘market value’ in their current condition when you start using them in the business.

For example, if you start using your 2-year-old MacBook that originally cost £2000, but a similar second hand one on eBay is priced at £800, you’d use the £800 cost on your tax return.

 

A reminder about expenses in general

For a reminder about what business expenses you can claim in general, please see our other blog on the subject.

 

I’m still confused about expenses for self-employed people

You are not alone! The rules on expenses can be complex and sometimes seem even illogical.

Ask your accountant or book a consultation with us to help you discover what you can and cannot claim as business expenses, and what records you should keep.

If you don’t have an accountant, or feel you aren’t making the most of your self-employed status with your current accountant, we’d love a chat about how we can help.