When Can I Claim Back Tax For Business Items?

Q.

At what stage of my new business can I claim back tax against items I buy for the business?

Do I need a business account initially?

A.

Some of the costs that you incur up to a whole seven years before you start trading can theoretically be deducted from your business turnover, as long as these expenses were incurred by you just for business purposes, and as long as the items or expenses that you are claiming against your tax bill are not fixed assets.

For example, if you buy business stationery in advance, pay for advertising or any purchase items that will be used to promote or set up your new business, you should keep accurate records and any receipts because you would be able to claim these costs back against your tax for the first year you start trading.

You would need to account for these expenses on your tax return as if they had been incurred on the first day of trading, but make sure that you give the correct date of purchase in the records.

What About Capital Expenditure?

The term capital expenditure just means the money you spend on initial set up costs of your business such as business premises, any IT, machinery, cars and vehicles, or cost of the tools needed to start the business.

You’re not allowed to deduct this when it comes to working out your taxable profits, but you are entitled to some tax relief on some items in the form of Capital Allowances. Ask your local tax office or an accountant if you’re not sure about whether you can claim capital allowance on a particular item of expenditure.

Capital allowances don’t give you a one off payment that you can write off against one single tax year, but instead they let you write off the cost over the life of that particular business purchase or asset. This means that if you but IT equipment, you will receive your tax relief over the course of the normal life of that equipment – three years for example.

For tax reasons, a fixed asset is usually defined as an item that’s likely to be used over several years, and is usually a higher value item such as a car, machinery etc.

Non fixed assets you can claim back as business expenses and you will be able to claim 100% of their value against your annual tax bill. These are usually smaller items, stationary, postage, travel costs etc.