Can I get tax relief for expenses incurred before I started trading?

I have recently become self-employed. Can I get tax relief for expenses which I incurred before I started trading?

Friday, 2nd August 2019, 11:45 am
Gemma Newstead


Expenses that you incurred before you started carrying out your business would fall under the pre-trading expenditure rules.

Expenditure that arises up to seven years prior to the date you start carrying out your business activity is eligible for this kind of tax relief.

The expense is only allowable if it would be treated as a tax deductible expense had it occurred after trading had commenced. It therefore has to meet the usual test of whether it is wholly and exclusively for the purpose of the business. You also need to ensure that you keep evidence of the expenditure in the way of invoices or receipts.

An example of this would be if you had purchased a number of plumbing tools which you then use when you become a self-employed plumber.

Purchases made in advance of trade commencing, for instance stock or rent paid in advance, would not fall under the pre-trading expense rules but would instead be included as a trading expense in the first accounting period.

Any capital expenditure will attract tax relief through capital allowances, with this being treated as if the expenditure had incurred on the first day of trading.

Any expenses that you incur after the date on which you started providing your product or service will be deducted from your income to calculate your taxable profit for your first year of trading.

If you would like to arrange a free consultation to discuss your tax position or require any other assistance, please contact Gemma Newstead on 01424 720222 or email her at [email protected]