Business Expenses prior to initial set up of business (UK)

Question

I'm setting myself up as a sole-trader in the UK, as a Life Coach. I hope to put out my first advertising and get my first paying clients over the course of the next month, or so.

It's clear to me that I can claim some costs as business expenses prior to actually doing business.

E.g.

• Buying Domain Name
• Setting up website
• Initial advertising
• Buying a business phone
• etc. etc.

These are all things that specifically relate to setting up my business.

As I trade I will buy books relevant to my trade to continue learning and keeping abreast of my industry.

It's clear to me that I should claim those books as business expenses too.

But I've been buying books about the industry as I headed towards my free-lancing, for the last several months - Can I claim those too?

A month ago, I bought a book about setting up a company, specifically to aid with this process. Can I claim that as an expense?

I have just (in the last 3 months) completed a 2-year Masters in Positive Psychology, which is my relevant qualification for doing this. If I'd done that whilst I was already a sole-trader, I would expect to treat this as an expense. But I actually did it before being a sole-trader. Can I claim that as a business expense?

More generally, how do I work out what I am and am not allowed to claim? Does HMRC have a guide for this?

Supposing I AM allowed to claim this, then how do I do it? Do I have to claim it in the first financial year I trade? (Which would be a shame since I likely won't earn enough to pay tax before April, in which case the expenses are irrelevant) Or am I allowed to back-claim it in the 18/19 financial year?

Answer 1

You can claim expenses during your 1st financial year, with different limitations for different things.

You can only claim money from taxes you are going to pay - the UK government does not actually give you money, except tax credits I suppose.

The claim happens on the sum you owe to the government in form of taxes, for a specific financial year and will never be more than the amount of taxes you owe.

If you are self-employed please refer to:

https://www.gov.uk/expenses-if-youre-self-employed

If you are planning running a limited company:

https://www.gov.uk/running-a-limited-company

Also as pointed by Rupert Morrish in the comment, if you were doing business for a while, you can carry the losses forward from the previous financial year(s), up to 5 years.

You can find out more about carrying losses forward in the UK using the link below:

https://www.gov.uk/government/publications/losses-hs227-self-assessment-helpsheet/hs227-losses-2017

Answer 2

I am not an expert but know a bit about taxes and quite a lot about business. Right off the top of my head I would say that any and all purchases made that help or enable you to start your business or make money can be claimed in expenses.

This resource I've found that should help you out more. It's through the government so you know it'll be lengthy and wordy but also your most accurate source.