What is a pre-trading expense?
Answered 11 March 2026
Here is a comprehensive answer on what a pre-trading expense is:
What is a Pre-Trading Expense?
What the law says
A pre-trading expense is an expense incurred for the purposes of a trade before the date on which the person or company starts to carry on that trade.
For individuals (ITTOIA 2005, s.57): The provision applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the start date. If no deduction would otherwise be allowed for those expenses, but a deduction would be allowed if they had been incurred on the start date, the expenses are treated as if they were incurred on the start date — and a deduction is therefore allowed.
For companies (CTA 2009, s.61): The same principle applies. A company incurring expenses for the purposes of a trade before (but not more than 7 years before) the start date may treat those expenses as incurred on the start date, provided no deduction would otherwise be allowed but one would be allowed if the expenses had been incurred on the start date. This section does not apply to expenses covered by the loan relationships rules (CTA 2009, s.330), which have their own parallel regime.
HMRC guidance / practice
HMRC confirms the three conditions that must be met for relief to apply to pre-trading expenses:
- The expenditure must be incurred within 7 years before the date the trade (or property business) starts;
- It must not otherwise be allowable as a deduction for tax purposes; and
- It would have been allowed as a deduction if it had been incurred after the trade started.
Practical examples include expenses such as interest on a bank loan, buying stock, refurbishing premises, and recruiting employees — all incurred before a company begins to trade.
In the context of PFI, HMRC gives the example of pre-trading bid expenses incurred before a PFI contract award is virtually certain — these are charged to the profit and loss account and treated as incurred on the day trading commences. However, where pre-trading revenue costs are capitalised, they do not qualify for relief under s.61, as they will be relieved through normal trading deductions later.
Loan relationship interest incurred in a pre-trading period has its own rules under CTA 2009, s.330: a company may elect (within 2 years of the end of the accounting period) to treat such a debit as a trading debit of the first period of trading, rather than as a non-trading debit — provided the company begins to trade within 7 years. If the company never starts trading, the debit is lost.
For individuals who claim the trading allowance (partial relief), pre-trading expenses cannot be deducted in computing taxable profits.
Detailed HMRC guidance is at BIM46350 onwards in the Business Income Manual.
Citation sources
Part 2 Trading income Chapter 5 Trade profits: rules allowing deductions Pre-trading expenses Pre-trading expenses 57 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 s
A customer may incur expenses for the purposes of a property business before that business starts. If so, they may be able to claim a deduction for them once the letting begins (ITTOIA05/S57 or CTA09/S61). Relief is only due under these special rules where the expenditure: is incurred within a period of seven years before the date the property business is started, and is not otherwise allowable as a deduction for tax purposes, and would have been allowed as a deduction if it had been incurred af
Under S57 ITTOIA 2005 an individual who incurs expenses for the purposes of a trade before they begin trading will be allowed to deduct these expenses in some cases. If an individual claims partial relief for the trading allowance they will not be allowed to deduct pre-trading expenses in computing their taxable profits. More information on pre-trading expenses can be found in the Business Income Manual at BIM46350.
S61 Corporation Tax Act 2009 Where pre-trading revenue expenditure is charged to the profit and loss account and is not capitalised, it is treated as incurred on the day on which the trade commenced (see BIM46350). An example in the context of the PFI, is pre-trading bid expenses incurred before the award of a PFI contract is virtually certain. These are charged to the profit and loss account and cannot subsequently be capitalised under Urgent issue task force abstract 34 ‘Pre-contract costs’ (s
A company intending to carry on a trade may incur expenses, such as interest on a bank loan, before it begins to trade. It may raise debt finance before starting up; it may need to buy stock, refurbish premises, recruit employees and so on. The interest and other expenses relating to the finance are non-trading debits, because no trade is yet carried on. If there is an overall deficit after aggregating the debits with any non-trading credits, the company is entitled to claim to set the non-tradi
Part 3 Trading income Chapter 5 Trade profits: rules allowing deductions Pre-trading expenses Pre-trading expenses 61 1 This section applies if a company incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the company 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 s