People set up in business for a variety of reasons. For some it is a dream that becomes a reality some years later. In working towards that dream, they may purchase items before the business starts to trade, to enable the business to trade, rather than for the purposes of the trade, e.g. a professional camera purchased to enable professional photographs to be taken in a portfolio of work before any trading has commenced. Other costs may include rent of premises, purchase of office supplies, marketing, etc. The downside of incurring expenditure prior to commencement is that tax relief for the pre-trading costs is delayed or can be lost altogether.
Normally expenses would not be allowable until the business starts trading but tax legislation specifically allows relief for pre-trading expenses as if incurred on the first day business commences (or the first accounting period for companies) as long as certain conditions are met.
The relief is available for both self-employed traders and companies for expenditure which:
- is incurred in the seven years before the trade, profession or vocation starts;
- is not otherwise allowable as a tax deduction;
- is incurred 'wholly and exclusively' for business purposes; and
- would have been allowed if incurred after the business started.
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