Hi
I am preparing a sole trader's accounts. He incurred some costs around 4 months prior to business registration date with HMRC. These were:
- cost of sales (cost of stock bought to set up his shop)
- Electricity on business premises
- Legal Expenses on renting the shop
- Other general expenditure
Can these costs still be included in the profit and loss account and therefore be allowable for tax?
Thanks in advance.
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Replies (5)
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Seriously?
Sorry but if you have to ask that question are you sure that you should be preparing accounts for anybody?
Seriously.
Yes I am sure. I have prepared many accounts before, but never came across a starting up business. If you cant help please don't reply... Many Thanks
Help
Yes I am sure. I have prepared many accounts before, but never came across a starting up business. If you cant help please don't reply... Many Thanks
He is helping. He's trying to tell you that if you don't know the basics, you are probably going to make a complete dogs breakfast of things. But hey, if you only want help on the stuff that you know that you don't know, I'm sure somebody will oblige and all the stuff that you don't know you don't know will just go by the wayside.
Pre trading commencement costs
Whilst the costs you mention all need incorporated within the first accounts you do still need to consider whether they are wholly and exclusively for the trade, expressly disallowed for tax purposes and whether they are capital or revenue expenses.
57 Pre-trading expenses
(1) This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade ("the start date").
(2) If, in calculating the profits of the trade-
(a) no deduction would otherwise be allowed for the expenses, but
(b) a deduction would be allowed for them if they were incurred on the start date,
the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them)."
[ Source : Income Tax (Trading and Other Income) Act 2005]
http://www.legislation.gov.uk/ukpga/2005/5/section/57
P.S.The one I would take a close look at is the legals re the leasing of the shop and possibly if the "other" costs include training costs or similar.