In the early days of starting a business, your main focus is finding new clients and delivering the work.
Most other things go out the window, so you can forgive yourself if you’ve submitted your first tax return and realised you forgot to include start-up costs in your self-employed allowable expenses list.
The good news? It’s not too late! We’ll look at what you’re entitled to claim for, how long you can backdate it, and some common things people think you can claim for which you actually can’t.
Let’s get started.
Simply put, anything you spend on the business before you began trading. It may take you longer than a year to get trade-ready, so HMRC allows you to backdate these expenses.
When it comes to the self-employed allowable expenses list, there are hundreds of potential things you can claim for.
Things like working from home, your car, and clothing, with multiple things within those categories.
For those allowable expenses, you must claim for each tax-deductible item the year you spent the money.
For example, if we look at the April – April 19/20 tax year, if you spent £3.30 on a bus ticket to visit a client on the 5th June 2019, you must claim that cost in the tax return you’d submit before January 2021.
Exceptions to this rule are start-up costs where, if you have a Limited Company, you can backdate up to seven years before you started trading.
You can only claim tax relief against income earned. For example, you can’t go out and spend £10,000 on machinery, earn a £3000 profit, and then expect the taxman to pay out £7000, can you?
Keeping the taxman happy is important, but the above also makes sense when you think about it. You’ve got to start earning money before you can claim tax back against it as business costs.
This depends entirely on your business. We advise you to speak to your accountant to make sure you’re being as tax efficient as possible.
If you don’t have an accountant because you’re worried they’re too expensive or you don’t need one, we offer basic bookkeeping packages from £25+VAT per hour or one-off training courses to teach you the basics so you can manage your books efficiently by yourself.
Some of the items you may be able to claim for include:
Don’t worry, if you bought any of your pre-trading equipment or expenses by yourself, HMRC still counts this as the company purchasing it.
There are some items (like tablets, laptops, and headphones) you may use for both personal and business.
As long as you can justify why you need them for business use, you should be fine. Again, it’s always worth checking with your accountant to make sure you keep the tax man happy.
The biggest misconception when it comes to claiming pre-trade expenses with HMRC is that you can claim for courses that teach you the knowledge to start a business, when in fact you cannot.
What do we mean by this?
Here are a few examples:
If a lot of the information above was new to you, it may be worth testing your general knowledge of taxable allowances with our short quiz.
Alternatively, download our FREE Pay Less Tax Guide here to find out how much tax you could save.
If this article has shown you that the world of accounting and bookkeeping is something you want no part in, we don’t blame you. Speak to us now about how we can take this job off your hands for as little as £25+VAT per hour, or read more articles here.