When you start a business, you will need to incur costs before you are able to start trading. Did you know that you are able to claim tax relief for these?

Relief is available for unincorporated businesses for income tax purposes and also for companies for corporation tax purposes.

Typically, you need to incur expenses securing business premises, buying stock, recruiting staff, setting up a website, IT and marketing.

In the same way that relief is given for business expenses incurred once the business is up and running, relief is also available for those incurred before the business commenced.

The relief

The general rule is that relief is available for business expenses that are incurred wholly and exclusively for the purposes of the business.

Relief is available for revenue expenses regardless of whether the cash basis or the accruals basis is used. However, the way in which the relief is given for capital expenditure depends on the way in which the accounts are prepared and your accountant will discuss and prepare in the most appropriate way.

The pre-trading relief rules allow relief for expenses that were incurred in the seven years prior to the start of the trade to the extent that the expenses would have been deductible had the expenditure been incurred once the business was up and running.

Pre-trading expenses are treated as if they were incurred on the first day of trading, and are deducted in computing the profits for the first period of account.

No deduction is given for the cost of stock under the pre-trading expenses rules. Stock purchased prior to starting will form opening stock, and relief against profits will be given for stock sold in the first accounting period.

Where the expenditure is capital in nature and qualifies for capital allowances, allowances are given as if the expenditure was incurred on the first day of trading.