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Pre-trading expenses are business costs you pay before your business starts trading, and you can claim tax relief on them if they were incurred within seven years before the start date. HMRC treats them as if you spent them on the first day of trading, so they reduce your first year’s taxable profit. The same rule applies to sole traders, partnerships and limited companies, and you may also reclaim VAT on some costs from before you registered.
Starting a business usually means spending money before the first sale: research, equipment, insurance, a website, advice. This guide explains which pre-trading expenses you can claim, how capital items work, the VAT rules for goods and services bought before registration, and a worked example for a new Bolton business.
What are pre-trading expenses?
Pre-trading expenses are costs incurred for a trade before that trade begins. Without a special rule, they would not be deductible, because there was no trade at the time. The legislation (section 57 ITTOIA 2005 for income tax and section 61 CTA 2009 for Corporation Tax) fixes this. If:
- the expense was incurred no more than seven years before trading started, and
- it would have been allowable if you had paid it once the business was trading,
then it is treated as incurred on the day trading starts and deducted in your first accounts.
The normal test still applies: the cost must be wholly and exclusively for the business. If a cost would not be allowed once you are trading, it is not allowed before either. Our list of expenses you can claim as self-employed shows what usually qualifies.
Which pre-trading expenses can you claim?
| Usually allowable | Usually not allowable |
|---|---|
| Market research for the business | Entertaining clients or suppliers |
| Advertising and leaflets before opening | Personal clothing or everyday items |
| Business insurance | Fines and penalties |
| Accountancy and setup advice | Training for a new trade you do not yet have skills in |
| Stationery and phone costs | Costs of buying an existing business |
| Travel to meet suppliers or premises viewings | Capital items (relieved through capital allowances instead) |
| Rent or rates on premises before opening | Expenses already claimed elsewhere |
Some costs may be deductible when you start trading under the normal rules rather than as pre-trading expenses, for example stock you bought in advance, which goes into cost of sales.
Capital items: equipment, tools and vans
Capital expenditure, such as machinery, tools, computers or a van, does not get relief as a pre-trading expense. It is handled through capital allowances instead.
The good news is that capital expenditure incurred before trading starts is treated as incurred on the first day of trading. So equipment bought in the months before you open can qualify for the Annual Investment Allowance, which gives 100% relief on up to £1 million of qualifying plant and machinery a year. Cars do not qualify for the Annual Investment Allowance and get writing down allowances instead.
If you already owned an item personally and bring it into the business, such as a laptop, you can usually claim capital allowances on its market value when you start using it for the business.
Pre-trading expenses for sole traders and limited companies
The seven-year rule is the same for both, but there are practical differences.
Sole traders and partnerships
Pre-trading expenses go into your first set of accounts and reduce your taxable profit on your Self Assessment return. If they create a loss in your first years, early years loss relief can let you carry the loss back against your total income for the three previous tax years, which may produce a tax refund from your earlier employment income.
Limited companies
The company can claim pre-trading expenses it incurred within seven years before it started trading. A common problem is spending before the company was formed. Costs you paid personally are not automatically the company’s costs. The usual approach is for the company to reimburse you, with receipts and a record through your director’s loan account, so the expense sits in the company’s books. Take advice before you rely on this, as the facts matter.
Reclaiming VAT on pre-registration expenses
Pre-trading expenses often carry VAT. When you register for VAT, you can reclaim VAT on some purchases made before your registration date, as long as they are for the business that is now registered and relate to your taxable supplies.
| Type of purchase | Time limit before VAT registration | Condition |
|---|---|---|
| Goods (equipment, stock, tools) | Up to 4 years | You still have the goods, or goods made from them, at registration |
| Services (advice, advertising, design) | Up to 6 months | Services must relate to your taxable business |
| Goods or services for private use | Never reclaimable |
You claim this VAT on your first VAT return. Keep the VAT invoices and a list of the items claimed, as HMRC may ask for them. If you are thinking about registering voluntarily to recover this VAT, read our guide to VAT registration first.
Worked example: pre-trading expenses for a Bolton start-up
Jade opens a dog grooming salon in Westhoughton as a sole trader on 1 June 2026. She registers for VAT from 1 October 2026. Before opening, she spent:
| Expense | Date | Cost | VAT reclaimable at registration |
|---|---|---|---|
| Market research (VAT not reclaimable, over 6 months) | February 2026 | £600 | £0 |
| Setup advice from an accountant | May 2026 | £600 | £120 |
| Advertising leaflets | April 2026 | £1,500 | £300 |
| Business insurance (no VAT) | May 2026 | £350 | £0 |
| Trial products used up in practice sessions | March 2026 | £480 | £0 (no longer held) |
| Grooming tables and dryers (still held) | January 2026 | £6,000 | £1,200 |
The costs above are shown net of reclaimable VAT, with irrecoverable VAT included in the cost.
Income tax: Jade’s £3,530 of revenue pre-trading expenses are treated as incurred on 1 June 2026 and deducted in her 2026/27 accounts. The £6,000 of equipment qualifies for the Annual Investment Allowance. Her total deduction is £9,530. If her profit sits in the basic rate band, that saves about £2,478 in income tax at 20% and Class 4 National Insurance at 6%.
VAT: On her first VAT return, she can reclaim £1,620. The equipment VAT is allowed because the goods are within four years and still on hand. The VAT on the accountant and leaflets is allowed because those services were within six months of registration. The market research was more than six months before, and the trial products were used up, so that VAT cannot be reclaimed.
Figures are illustrative and use 2026/27 rates in England.
How to keep good records before you start
- Open a separate bank account as early as possible and use it for every business cost.
- Keep every receipt and VAT invoice, even for small items.
- Note the date and the business purpose for each cost.
- Keep a list of equipment you bring in from personal use, with its value.
- Use cloud bookkeeping from day one, so nothing is lost by the time your first accounts are due.
Frequently asked questions
How far back can you claim pre-trading expenses?
You can claim costs incurred up to seven years before your business started trading. They are treated as if paid on the first day of trading.
Can I claim pre-trading expenses if I set up a limited company?
Yes. A company can claim pre-trading expenses incurred within seven years before it started trading. Costs you paid personally before the company was formed should be recharged to the company with clear records.
Can I claim VAT on purchases before I registered?
Yes, within limits. You can reclaim VAT on goods bought up to four years before registration if you still have them, and on services bought up to six months before.
Are equipment costs before trading allowable?
Not as pre-trading expenses, because they are capital. They are treated as bought on the first day of trading and usually qualify for capital allowances, including the Annual Investment Allowance.
What if my pre-trading expenses create a loss?
A sole trader or partner can use early years loss relief to carry the loss back against total income for the previous three tax years. A company can carry a trading loss forward or use it in other ways under the Corporation Tax rules.
Get help starting your business
Cangaf’s ACCA-qualified team helps new businesses in Bolton and Greater Manchester claim every pre-trading cost, set up their books and get their first VAT return right. Our start-up business advisors can guide you from day one. Request a fixed-fee quote today.
Official guidance: HMRC manual: pre-trading expenditure, Reclaim VAT on business expenses, HMRC manual: pre-registration input tax and Annual Investment Allowance.
