Syllabus B. Income Tax And Nic Liabilities B3. Income from self-employment

B3e/E2b. Relief for pre-trading expenditure 5 / 11

Syllabus B3e/E2b)

Recognise the relief which can be obtained for pre-trading expenditure.

When does trading commence?

Trading commences on the first day on which a trader makes a sale.

However, the trader would have incurred expenditure before this date, for example, advertising expenditure and/or rent paid in advance.

  • This expenditure incurred before trading has commenced is known as “pre-trading expenditure”.

    Pre-trading expenditure will get tax relief by being treated as though it was incurred on the first day that a sale is made, if the following conditions are satisfied.

Conditions for pre-trading expenditure to be allowable

  • 1) It is incurred within 7 years of the commencement of the trade.

  • 2) It is an allowable expense.

  • For example, if goods were purchased for sale for the business 4 years before the business had its first sale; this purchase price will be deducted from the first profits also.


Manny made his first sale in his packaging business on 04/05/2020.

Before this he incurred the material expenses of £3,000 on 31/12/2019.

  • Will this expenditure be deducted from the sales revenue to arrive at tax adjusted trading profit?


Yes, this expenditure will be deducted from his sales revenue to arrive at the tax adjusted trading profit. 

It will be treated as though the expenditure was incurred on 04/05/2020.

This is because money spent on materials used in the business are an allowable expense and it was incurred within 5 months of the trade starting.