How should pre-trade expenses be recorded for a self-employed (UK)?

Welcome to the Community, Jake T.

Before anything else, I would to clarify on what product on QuickBooks are you using to record your expenses, are you using QuickBooks online or QuickBooks Self-Employed?

Furthermore, let me share insights regarding recording incurred expenses in QuickBooks Online (QBO). Expenditures incurred before trading activity begins but within the same tax year should generally be recorded on the day trading activity officially starts. This is by the principle of matching expenditure to revenue for a particular period.

Moreover, in recording your incurred expenses what to use in recording them, and whether to use the Chart of Accounts or not, I highly recommend speaking and seeking advice from your accountant for additional guidance.

If you don't have an accountant, feel free to visit this page to find an accountant for your business: Find a QuickBooks ProAdvisor.

Moreover, check this blog that discusses the guidelines for being a sole trader: Account and Bookkeeping: A Guide for Sole Traders.

Don't hesitate to comment below if you have additional questions concerning your incurred expenses upon recording them in your QBO. I'll be here to answer them any time. Have a great day ahead!

Thank you. Do I take it right that even the expenses happened a day or a week before my official first day of trading should be recorded on the first day of trading (not the actual date)? Please advise.

Just FYI, I use QBO, not QB self-employed.

Hello Jake T, if expenses happened in the same tax year you can record them on the exact date they happened as they will appear in the financial reports and tax reports (if you are VAT registered) for the same period. It is best to add things as closely as possible as to when they actually happened as much as possible. Any other questions feel free to ask them here.

Thank you for the info. In order to "add things as closely as possible as to when they actually happened as much as possible" would it be better to record the old purchases on the first day of the tax year (6 April) instead of the first day of trading?

Thanks for the prompt response, Jake. Let me clarify this when to add your purchases in QuickBooks.

When you record old purchases in QuickBooks, it depends on how you want the transaction to appear in your reports and books. Typically, these expenses are treated as having occurred on the first day of trading, allowing you to deduct startup costs from business profits.

However, it's a good idea to consult an accountant on when to record the old purchases. Doing this will help ensure your books have accurate records.

Additionally, I'll be sharing these resources that will guide you in managing your expenses and customising common reports  to show transactions for specific needs:

• Enter and manage expenses in QuickBooks Online
• Common custom reports in QuickBooks Online

If you need additional assistance in adding your purchases or with other QuickBooks concerns, let me know in the comment below. I'm always here if you need further help. Have a good one!

Thank you, but it doesn't look like you've read the previous messages in the theme :)

If you do so, you would notice that this issue is tricker then it supposed to be. Also, I do not use QuickBooks Self-Employed..

What about if the expense happened in the previous tax year?

Also how far back can I claim expense for office rental? It took me almost 17-18 months to prepare to start a business. During this time I was working out of a co-working space like WeWork paying out of my pocket.

Thank you for joining this thread, ashisk10. I can provide clarification on claiming expenses in QuickBooks.

For the expenses from the previous tax year, we will need to claim expenses as exceptions on your first VAT return to HMRC. To do this, we'll first need to file a blank return on QuickBooks Online so the system can trigger the exceptions to be created on your next (actual) return. Exceptions are generated when any transaction that was filed in a previous return on QuickBooks is edited (for example, if the VAT code is changed).

Before we begin, please make sure that the reclaimable transactions do not have any VAT code applied (set these to 'No VAT' on the 'amounts are' drop-down). 

Once done, please follow the steps below:

1. Navigate to Taxes.
2. Select VAT then click Edit VAT.
3. Click Edit settings.
4. Set the When do you need to start calculating your VAT?  from the field to the month immediately before the start date of your first return.
5. Click Save. 

To file the return:

1. Go to Taxes.
2. Click Prepare Return.
3. Check that the 'end date' is the day before the start date of your first return (you can edit this here if your default filing frequency is quarterly) And then Mark it as filed.

When you mark the period as filed, the next VAT period opens automatically. You can then edit the reclaimable transactions to add the relevant VAT code, which will show as exceptions on your return.

Additionally, you can check out this article to learn how to adjust your VAT liability using QuickBooks Online: Make VAT adjustments in QuickBooks Online.

Drop me a comment below if you have any other questions concerning your expenses. I'll be more than happy to help. Wishing you a good one.

.

Thanks so much. A couple more questions

1. how far back can I claim expense for office rental? Any limit? Two previous financial years? Like I said it was 17-18 months but over 2 previous financial year(2022-23 & 2023-24). 

2. Also I did not understand what to put in 'When do you need to start calculating your VAT? ' and 'end date' on file my return. Eg. In case my company started trading on June 15, 2024 but had monthly office rental expenses from July 2022.

3. For filling my pre-operational expenses with VAT in the previous financial year, what should be the date that I enter in the system?

I appreciate your follow-up response, ashisk10. I'll provide additional input when claiming expenses in your online account.

With regard to the information shared by my colleagues above, claiming expenses for your office rentals is up to four (4) previous tax years (e.g. 2020-2021 to 2023-2024) from the current tax period. This limit will also depend on your business operations and entity type.

That said, you have to ensure that you've kept a copy of your receipts to provide proof to the HMRC. Additionally, I'd recommend reaching out to them to seek further details on the limits and provide comprehensive insights.

On another note, you'll need to enter the specific date as to when your business officially started calculating the Value Added Tax (VAT). Also, when filing pre-operational expenses with VAT, it's best to consult your accountant or HRMC to assess accurate information on these relevant filings.

Moreover, I'm including these guides to help you in managing your expenses and payroll workflows:

• Enter and manage expenses in QuickBooks Online
• Run payroll in QuickBooks Online Standard Payroll

Just keep me posted if there's anything else you need additional assistance with when managing expenses in your account. Stay safe and have a good one.