What Tax Relief Can I Claim On Startup Costs?Written on September 17, 2026 by Kirk Rice LLP
Virtually all businesses need money to get off the ground, whether it’s just for some basic office equipment or for more elaborate machinery and business premises. Either way, you’ll want to ensure you receive the maximum tax relief for these start-up costs.
The first point to note is that qualifying pre-trading revenue expenditure may be treated as incurred on the first day of trading. The position is broadly similar whether you intend the business to operate through a company, partnership or as a sole trader. The expenditure must have been incurred for the purposes of the trade, no more than seven years before trading begins, and must have been deductible had the trade already started.
For sole traders & partnerships
For a sole trader, expenditure personally incurred before trading begins may qualify, provided the individual subsequently carries on the trade and the other conditions are met. However, a partner’s personal payment does not automatically mean that the partnership is entitled to claim the expense. It is necessary to consider who incurred the expenditure and whether it was incurred for the purposes of the partnership’s trade.
For limited companies
Where you set up a limited company and provide it with cash, which it then uses to pay suppliers, the company may claim qualifying pre-trading expenditure. The expenditure must still satisfy the normal conditions for deductibility. Capital expenditure, such as expenditure on machinery, equipment or business premises, is not normally deductible as an ordinary trading expense, although separate capital-allowance rules may apply.
Expenses pre company formation can be complicated
The position is more tricky where you incur expenses personally before a company is formed. The individual and the company are different taxpayers, and the company does not automatically become entitled to a deduction merely because the individual later becomes a director or shareholder.
Where you personally pay a pre-trading expense, reimbursement by the company, or recording the amount as owing to you, does not by itself change the identity of the person who originally incurred the expense. The company should not therefore automatically claim a deduction for a personal pre-incorporation expense. Each item should be considered separately. Where possible, costs intended to be company costs should be incurred by the company after it has been formed.
An example:
- In March 2018 Harry decided to set up his own environmental consultancy and go it alone.
- First, he needed to develop his idea and identify potential customers. He spends several thousand pounds in doing so.
- In January 2019 he forms Acom Ltd to front his business. Harry cannot assume that Acom Ltd may claim the development costs merely because it reimburses him or records the amount as a debt owed to him.
- The result may be different for costs incurred and paid directly by Acom Ltd. In all cases, the seven-year period must be considered by reference to the date each expense was incurred and the date the relevant trade began.
Please note: This article was correct at the time of publication. It is intended for general information only and should not be relied upon as professional advice. Specific advice should always be obtained based on your individual circumstances.
Recent Posts
-
Career Story – Rebecca EvansWritten on October 9, 2026 by Kirk Rice LLP
-
VAT Compliance: What Every SME Should KnowWritten on October 7, 2026 by Jonathan Swarbrick
-
6 Things to Know About Tax on Extra Income: Second Jobs, Freelance Work, & MoreWritten on October 5, 2026 by Jane Page
-
Business Valuation – Where Do I Start?Written on October 2, 2026 by Kirk Rice LLP
-
Payroll – Should You Outsource?Written on October 1, 2026 by Kirk Rice LLP
