Pre-Trading Expenses: The Tax Relief Many Founders Miss
When you start a limited company, there is often a flurry of spending before the business is officially up and running. Website costs, software, equipment, professional fees.
Many founders assume that because these expenses were incurred before the company was registered, they are lost for tax purposes.
That is not the case.
Pre-trading expenses do not disappear just because your company was not officially formed yet. In many situations, your limited company can still claim tax relief on them.
What Are Pre-Trading Expenses?
Pre-trading expenses are costs you incur before your limited company begins trading, as long as they were incurred wholly and exclusively for the purpose of the business.
HMRC allow limited companies to claim certain pre-trading expenses as if they were incurred on the first day of trading.
This can reduce your Corporation Tax bill and reimburse you for money you personally spent getting the business off the ground.
Common Pre-Trading Expenses That Can Be Claimed
While every business is different, common examples of pre-trading expenses include:
Website design and development
Branding and marketing costs
Software subscriptions
Office equipment and laptops
Professional fees such as accountancy or legal advice
Market research
Training directly related to the business
The key requirement is that the expense was incurred for the purpose of the company and would have been allowable if the company had already been trading.
How Far Back Can You Claim?
In most cases, a limited company can claim revenue pre-trading expenses incurred up to seven years before trading begins.
This surprises many founders and is one of the reasons so much tax relief gets missed.
Capital expenses, such as equipment, are treated slightly differently, but they can still qualify for relief through capital allowances.
How Pre-Trading Expenses Are Treated
Pre-trading expenses are added into the company accounts as if they were incurred on the first day of trading.
If you paid for them personally, the company can usually reimburse you, or the amount can be credited to your director’s loan account.
Getting this recorded properly is important to make sure the claim is valid and compliant.
Common Mistakes We See
Some of the most common issues around pre-trading expenses include:
Assuming costs cannot be claimed because the company did not exist
Missing receipts or records
Claiming personal expenses that are not business related
Failing to separate capital and revenue costs
Not recording the transactions correctly in the accounts
These mistakes can either lead to missed relief or problems if HMRC review the claim.
Why This Matters
Pre-trading expenses can easily run into thousands of pounds.
Missing them means paying more Corporation Tax than necessary and not recovering money you personally invested in the business at the start.
Claiming them properly is not aggressive tax planning. It is simply using the rules HMRC already allow.
The Bottom Line
If you spent money getting your business off the ground, do not assume it has been lost for tax purposes. There is a good chance your limited company can still claim relief on it.
If you are unsure whether your pre-trading expenses have been claimed correctly, or if you want help reviewing what can be included, get in touch. We are here to make sure nothing gets missed.
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.
