Definition
Pre-trading expenses are business costs incurred in the seven years before a trade starts, such as market research, advertising or professional fees. If a cost would have been allowable once trading had begun, HMRC treats it as incurred on the day trading starts, so it is deducted from profits in the period in which trading begins. The rule applies to limited companies for Corporation Tax and to sole traders.
What qualifies
The cost must pass the normal test of being incurred wholly and exclusively for the business. Day-to-day (revenue) costs are deducted as expenses. Equipment bought before trading is capital, so it is claimed through capital allowances instead, again treated as bought on the first day of trading.
Stock bought in advance and prepayments such as rent paid ahead do not count as pre-trading expenses, because they are deducted later when the business uses them.
Example
Harbour Coffee Ltd was incorporated in November 2026 and opened in March 2027. The £2,400 it spent on market research and advertising before opening is treated as spent on the opening day and deducted in the accounting period in which it started trading. The £6,000 coffee machine bought in January 2027 is claimed through capital allowances.
These costs are easy to overlook on your first Corporation Tax return, which SmartFiling’s Corporation Tax filing service can prepare as part of a new company’s CT600.
Related questions
- What if my company's first accounting period is longer than 12 months? HMRC splits it into two accounting periods, and the company files a CT600 for each.
- Can a sole trader claim pre-trading expenses? Yes, the same seven-year rule applies for Income Tax.
Related terms
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Accounting period
An accounting period is the period covered by a company's Company Tax Return (CT600) and used to calculate its Corporation Tax.
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Taxable total profits
Taxable total profits are the profits on which a UK company pays Corporation Tax for an accounting period.
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CT600
The CT600 is the Company Tax Return a UK company files with HM Revenue and Customs (HMRC) for each accounting period.
Read definition
