Pre-trading expenses: claiming what you spent before the company started trading

By Buzz Accounting · 3 August 2026

Most founders spend money before the company earns anything, on things such as a laptop, software, travel to meet suppliers, brand design and an accountant to set the company up. Much of it is deductible, and some of the VAT can be reclaimed on your first VAT return. The rules put this spending into three groups with different treatment and time limits, and a cost put in the wrong group can lead to claiming too much or too little.

The seven-year rule for pre-trading costs

Day-to-day (revenue) spending incurred up to seven years before trading starts is treated as if it were incurred on the first day of trading. It sits in your first accounting period and reduces that period's taxable profit like any other cost. The rule is in section 61 of the Corporation Tax Act 2009 for companies and section 57 of the Income Tax (Trading and Other Income) Act 2005 for sole traders and partnerships.

Two conditions apply. The cost must be one that would have been deductible had you already been trading, and it must meet the wholly-and-exclusively test, meaning it was spent only for the business. Professional fees, market-research travel, domain registration, insurance, software subscriptions, design and branding work usually qualify.

These do not qualify under the seven-year rule:

Capital expenditure. Equipment is relieved through capital allowances, covered below.
Trading stock bought in advance. HMRC's guidance excludes it. Stock is deducted as a cost of sales when you sell it.
Prepaid expenses, such as rent paid in advance for a period after trading has begun.
Company formation costs. HMRC treats incorporating a company as capital spending. The Companies House digital incorporation fee is £100, and it is added back in the corporation tax computation, although the company can still reimburse you for it.
Training that gives you a new skill. Training that updates a skill the business already uses can be deductible.

Equipment and capital allowances

Equipment bought before you start trading is handled by section 12 of the Capital Allowances Act 2001, which treats pre-trading capital spend as incurred on the first day of trading. The Annual Investment Allowance is £1,000,000, so a startup can usually deduct the full cost of its equipment from profit in year one. Cars are excluded and go into the writing-down allowance pools instead.

You cannot claim the Annual Investment Allowance on something you owned for another purpose before you started using it in the business. A MacBook you bought personally eighteen months ago and now use for the company is brought in at its market value on the date business use begins. It is relieved through writing-down allowances at 14% a year in the main pool, the rate for company accounting periods from 1 April 2026. If the balance in the main pool is £1,000 or less, the small pools allowance lets you claim the whole balance in one year instead. Keep evidence of the market value on the day you bring the item in, such as a dated copy of a comparable second-hand listing.

Reclaiming VAT on spending before registration

Once you register for VAT you can reclaim VAT on some spending from before registration. Goods and services have different time limits:

Goods: four years before the registration date. You must still have the goods at that date and use them in the registered business, so a laptop you sold last year does not qualify.
Services: six months before the registration date. This limit covers services such as accountancy, legal advice, design work and consultancy.

VAT on services bought more than six months before registration cannot be reclaimed. If you paid a designer or a solicitor a year before registering for VAT, that VAT is lost, although the cost itself is still deductible for corporation tax under the seven-year rule.

Worked example: pre-launch spending

Take a founder who incorporates in November 2025, spends through the winter, starts trading on 1 April 2026 and registers for VAT the same day. All figures are illustrative.

Brand and website design, June 2025 — £2,000 + £400 VAT. Ten months before registration, so the VAT is outside the six-month services window and cannot be reclaimed. The £2,000 is still deductible under the seven-year rule.
Laptop and monitor, December 2025 — £1,500 + £300 VAT. Still on hand at registration, so the £300 VAT is recoverable on the first return, and the £1,500 gets the Annual Investment Allowance in full.
Company formation and legal setup, November 2025 — £50 Companies House fee plus £900 + £180 VAT of professional fees. The digital incorporation fee was £50 until it rose to £100 on 1 February 2026. The £50 is capital and disallowed. The £900 is deductible, and the invoice is within six months of registration, so the £180 VAT is recoverable.
Founder's existing iPhone, brought into business use April 2026 — market value £340. There is no Annual Investment Allowance, because the founder owned it personally first. It goes into the main pool at £340. The pool balance is under £1,000, so the small pools allowance gives £340 of relief in year one.
Market-research travel and software subscriptions — £600, no VAT recoverable on the older invoices. Fully deductible.

Adding it up. Deductible day-to-day costs are £2,000 + £900 + £600 = £3,500. Capital allowances are £1,500 of Annual Investment Allowance plus £340 of small pools allowance. Total relief against profit: £5,340. At the 19% small profits rate, which applies to profits up to £50,000, that is £5,340 × 19% = £1,014.60 of corporation tax saved. The main rate is 25% on profits above £250,000, with marginal relief between. Recoverable VAT on the first return is £300 + £180 = £480.

That is about £1,495 back from spending that had already happened. The £400 of VAT on the design invoice was lost because of the six-month rule. Registering for VAT about four months earlier would have brought that invoice inside the window, and our VAT guide covers how to choose a registration date.

Money you paid personally

If you paid business costs with your own money before the company existed, the company can still claim them. Once it is trading, the company either reimburses you or credits your director's loan account, which then shows the company owing you money. Keep the receipts and a simple list of the costs, and make sure each reimbursement matches the evidence exactly. HMRC can challenge round-sum reimbursements with no receipts behind them.

Do this today

Photograph every receipt you can find and keep the images in one folder or in your accounting software. Use old bank and card statements to find anything missing.
List each item: date, supplier, amount, VAT, and what it was for.
Mark each one as revenue, capital or formation cost, which decides the relief it gets.
Mark which goods you still own, because those are the goods you can reclaim VAT on, and note anything you owned personally first, with its market value and evidence.
Check your intended VAT registration date against the six-month window for services before you fix it.
Tell HMRC the company is active within three months of starting your accounting period.

From then on, photograph each receipt on your phone when you spend, so the bookkeeping is up to date by the year end.

Common questions

How far back can a startup claim expenses incurred before it started trading?

Revenue costs incurred up to seven years before trading begins are treated as if incurred on the first day of trading, under section 61 of the Corporation Tax Act 2009 for companies and section 57 of the Income Tax (Trading and Other Income) Act 2005 for sole traders. They reduce your first period's taxable profit. The cost must be one that would have been deductible had you already been trading, and it must still be wholly and exclusively for the business. Advance purchases of trading stock, prepaid expenses and capital expenditure are all excluded from this particular relief.

Can I reclaim VAT on things I bought before registering?

Yes, but goods and services have different limits. VAT on goods can be reclaimed up to four years before your registration date, provided the goods are still on hand at that date and are for use in the registered business. VAT on services is limited to six months before registration. Design, legal and accountancy invoices are often more than six months old by the time a startup registers, so the VAT on them is lost. Weigh your registration date against those invoices before you fix it.

Can I claim for a laptop I already owned before the business started?

You can claim relief, but not the Annual Investment Allowance. Items you owned for another purpose before you began using them in the business are specifically excluded from the Annual Investment Allowance. Instead the asset is brought in at its market value on the date business use starts and relieved through writing-down allowances at 14% a year in the main pool. If the main pool balance is £1,000 or less, you can claim all of it in one year under the small pools allowance, so a phone worth £340 can still be relieved in full in the first year. Keep evidence of the market value at the time, such as a dated copy of a comparable second-hand listing.

Are company formation costs tax deductible?

No. HMRC treats incorporating a company as capital spending, so the formation costs are disallowed in the corporation tax computation. The Companies House digital incorporation fee is £100. The company can still reimburse you for it, and it still belongs in your records and your accounts, but it is added back when the taxable profit is worked out. Professional fees for setup advice are treated differently and are usually deductible under the seven-year pre-trading rule, so keep those invoices separate from the formation fee itself.

When do I have to tell HMRC the company has started trading?

Within three months of the start of your accounting period, once the company becomes active for corporation tax. Active means carrying on business activity, trading, or receiving income such as interest. Preliminary steps such as writing a business plan or negotiating contracts before you start do not count on their own. This is separate from registering with Companies House and separate from VAT registration, and the deadline runs regardless of whether you have made any money yet. Missing it can lead to a penalty.