Pre Start Up Costs – What are they & what can I claim?

Starting your own business is a scary step. Whether it’s a profession you’re familiar with or completely new territory the decision to make the move into self-employment is daunting.

Before you start your business one of the things that could be on your mind will be pre start-up costs. What are they? What can I claim for?

Hopefully this blog will help answer some of those questions.

Whether you are starting a limited company or are a sole trader the pre-trading expenditure is treated as if was incurred on the first day of trading.

The first day of trading can vary from business to business but it is usually on or before the first invoice is issued or first payment is received. However, there are some exceptions, for instance, if a trainer delivers a course and then invoices after the course the business start date would be prior to the first invoice date.

But what can you use in your pre-trade expenditure? It is important to remember, and always keep at the forefront of your mind, that is anything that has been purchased wholly and exclusively for the use of the business.

Most of the time these purchases will be made shortly before you begin trading but the purchases can range back up to seven years prior to the commencement of trade.

The most obvious example of pre start-up costs would be stock, advertising and equipment for the business. However, there are some lesser thought of examples of pre-trade expenditure which can include rent, heat, light and mileage. Although this list is not exhaustive it gives an idea of what you can claim for.

What if I want to use my laptop for the business? You can do this. If your laptop has been previously used on a personal basis, this can be transferred across to the business at its current market value. There are a variety of sites where you can get an idea of how much items are currently worth. This method can be applied to other items that you have previously used on a personal basis such as printers.

It is worth bearing in mind that you will not be able to claim the full annual investment allowance (AIA) on profits before tax. Instead you would need to claim a writing down allowance (WDA) For more information on capital allowances, writing down allowances and how to calculate them visit www.gov.uk/work-out-capital-allowances.

It is also worth remembering that capital expenditure is generally not allowed to be included in pre-start-up costs unless you have purchased equipment, this can be included.

As well as being able to see how much you could offset against any profits, by sitting down and calculating your pre-start up costs you will be able to see how much it will cost to start the business that you dream of.  

Although this blog is designed to give an overview of pre start-up costs, many of them will be specific to the trade that you are looking to start a business in.

If you require any more help or support in calculating your pre start-up costs it would be worth speaking to an accounting professional such as a bookkeeper or accountant.