Claiming expenses is one of the main ways to reduce how much tax you pay. Whether you spent a fortune before you even opened for business, or you’ve been trading for a while and realised you’ve missed some expenses off your tax return – we’ll look into whether you’ll still be able to claim them as an expense.

When is my business classed as trading?

The minute your business starts buying and selling goods – it’s trading. Anything you purchase from that point on, if used exclusively for your business, can be claimed as a business expense. This is then deducted from your income to reduce the amount of profits you need to pay tax on (meaning you’ll pay less in tax!).

What are pre-trading expenses?

Pre-trading expenses are basically any purchases you made before your business was set up. You’ve likely made these purchases in preparation for opening your business.

If you’re just finding out about pre-trading expenses, it’s important to note you can backdate claims for up to seven years before your business started trading.

What pre trading expenses can I claim back?

The types of pre-trade expenses you can typically claim back might include:

• Accounting and legal fees
• Phone bills
• The cost of leasing or purchasing business premises
• Things like website and logo design
• Marketing and advertising
• Business travel
• Web hosting services and domain names
• Recruitment
• Stationery
• Uniforms

HMRC are likely to approve any pre-trading expense that is wholly and exclusively used for your business, and something that would be classed as a regular expense had you been trading at the time.

Pre trade expenses you cannot claim back

Some purchases can’t be claimed as pre-trading expenses, such as:

• Business licenses
• Cost of company formation (although if you hire an accountant, some of them do this for free as part of your package)
• Training courses
• Improvements made to the business premises
• Fines or penalties
• Maintenance costs
• Entertainment costs for clients/potential customers

Claiming back pre-trade expenses

You’ll treat any pre-trade expenses as though they were incurred on day one of trading. So, if you run a limited company you’ll include these costs on your first Company Tax Return, helping to reduce your Corporation Tax bill.

Can I reclaim VAT on pre-trade expenditure?

You can reclaim any VAT you incurred on goods you bought for your business up to four years before your VAT registration date as long as you still have the goods in your business (or up to 6 months prior for services).

This can be particularly helpful because a lot of new businesses don’t need to register for VAT straight away, but may be able to reclaim the VAT if they become registered at a later date.
 

What if I was already trading and I missed an expense off my tax return?

You can usually make changes to your tax return, even if you’ve already filed it. Your bill will be updated, and you’ll be able to claim a refund (or pay more if you’ve had to change it for another reason). It’s worth noting you only have 12 months from the Self Assessment or Company Tax Return deadline to do this, either through your online tax account or by writing to HMRC.

Keeping records of all your expenses

Keeping records is not just beneficial for your business, it’s a legal requirement. This process is known as bookkeeping, and it’s something you can either do yourself, or take care of by hiring a bookkeeper. It involves recording the day-to-day transactions of your business, as well as bank statements, invoices, and expenses such as mileage.

The world has changed since you could jot this information down in a notebook. Thanks to Making Tax Digital, you must keep digital records of your finances, such as on a spreadsheet, or with bookkeeping software like Pandle.

 
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.