When you’re gearing up to launch a trade, it’s natural to watch expenses pile up even before the official start date. These costs might include setting up your premises, stocking up on inventory, securing software, or even legal fees. Given the potential impact on your finances, it’s crucial to leverage tax relief opportunities to ease this initial financial outlay. Both unincorporated businesses and companies can benefit from relief on pre-trading expenses.
The key is that relief is reserved for the entity—be it an individual or a company—that bore the costs and initiated the trade.
For revenue expenses, there’s a seven-year window before the trade’s start date within which you can claim. The golden rule here is simple: if the expense would be deductible post-commencement, it should be deductible pre-commencement. These pre-trading expenses are then treated as if they were incurred on the first day of trade, helping to reduce the taxable profits of your first accounting period.
Capital expenses hinge on whether you’re using the cash basis for your accounts. Under the cash basis, deductible capital expenses are treated similarly to revenue expenses—considered incurred on day one of business. If you’re not using the cash basis and instead are eligible for capital allowances, these allowances will be applied as if the expenses were made on the first trading day.
The bottom line? Make sure to claim these early investments to mitigate the costs of setting the stage for your new venture.
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