BIM46351 - Specific deductions: pre-trading expenditure: scope

ICTA88/S401 provides relief in respect of certain expenditure of a revenue nature incurred for the purposes of a trade, profession or vocation before it is commenced.

The relief extends only to expenditure incurred on or after 1 April 1980 which:

• is incurred within a period of seven years prior to the commencement of the trade, profession or vocation (five years for businesses which commenced between 1 April 1989 and 31 March 1993 and three years for those which commenced up to and including 31 March 1989),

and

• is not allowable as a deduction in computing the profits of the trade, profession or vocation but would have been so allowable if incurred after the trade had commenced.

Thus, the 'wholly and exclusively' test still has to be satisfied for the purposes of the relief and no relief can be allowed for capital expenditure. For the purposes of claiming capital allowances there are special provisions in the CAA01 to treat pre-trading capital expenditure as incurred on the date trading starts, for the purposes of claiming capital allowances- see CA11800).

The cost of an advance purchase of trading stock does not qualify for relief under Section 401, since its cost will be deductible in arriving at profits when trading begins. Similarly, to the extent that any other expenditure incurred in the pre-trading period will be deductible in computing taxable profits for a period after trading has commenced, e.g. rent paid in advance, that element of the expenditure will not qualify for relief under ICTA88/S401.