Wholly and exclusively
Only those expenses which are incurred wholly and exclusively for the purposes of the trade are deductible. In practice the Revenue will allow some apportionment of costs that have both private and business elements, but this is only usually where you can demonstrate that there is an additional cost to you because of the business use.
Relief is only available for expenses which relate to the trade, known as ‘Revenue expenses’. Expenses which relate to the assets of the trade are treated differently (see below – Capital expenses). Examples of capital expenses include the costs of setting up a limited company or the purchase of an office or equipment within it.
Any pre-trading expenses are treated as if they were incurred on the first day of trading, so if the trade starts on 1 November then the costs will be treated as if they were incurred on that day.
There are a couple of other points that you should be aware of
Any stock bought in advance of trading will follow the normal matching rules so that the cost of purchases are matched to the items sold in the period. If stock is not sold in the period it will be carried forward as part of the closing stock in the normal manner.
Although relief is only given for revenue expenditure, where the business incurs capital expenditure which would have qualified for capital allowances, the expenditure is also treated as if it were incurred on the first day of trading and capital allowances can be claimed in the normal manner. Annual investment allowance can also be claimed for these types of expenses where applicable.
When setting up a new business, don’t forget to keep a record of all of your expenses so that you are able to maximise your relief in the first period and minimise your tax liabilities.