Your plan is to start a business. So, you start preparing by buying tools, equipment and stock before the business actually starts. These are usually known as pre-start up expenses. You may have a hobby which you realise you can turn into a business. You bought stuff for your hobby which you will either use in your business or sell. Are these pre-start up expenses allowable as a tax deductible business cost?
The general principle is that a tax deduction is allowed for expenses incurred within the seven years before a business begins trading as long as they would be deductible had they been incurred after trading commenced. A deduction is only allowed where the person or company who incurs the expense uses it for their business when it commences – a pre-start up expense.
Pre-start up expenses for different types of business
The way this is dealt with is different depending on whether the business becomes a sole trader, partnership or company.
Where an asset is involved, such as a computer, vehicle or equipment, which had been used personally before the business started, it is the value at the time the business starts which is used in producing accounts and tax returns.
Often we find that there was no specific intention to start a business years before so there are no records of actual purchases so this makes it difficult to take advantage of these in a new business. Keeping receipts is a good idea – but few people do this in anticipation of starting a business. It is possible to itemise anything being introduced and estimate the original cost. This approach is more likely to result in queries from HMRC, so is not ideal.
If you are thinking of starting a business or have recently embarked on one, give us a call to help you get the best tax deduction. A Free chat is always available and our “open door” policy means that our clients can call us as often as they need to. Our number is (01509) 816150 or you can use the contact form below.
Look forward to hearing from you.