In the beginning, a business may incur certain pre-trading expenses in advance of actually commencing trade. Such expenses would include (but are not limited to); costs of feasibility studies, accountancy fees, advertising costs, rent of premises etc.
Under Section 82 TCA 1997 , a deduction is available for these expenses against the income of a trade or profession in circumstances where;
- The expenses are incurred in the three years prior to commencement of the trade or profession, and
- The expenses would have been allowable against the income of the trade or profession had they been incurred after the commencement date of the trade or profession.
As with all allowable business expenditure, the pre-trading expenses must have been incurred wholly and exclusively for the purposes of the trade or profession.
It is important to note the pre-trading expenses deduction cannot be taken where it will create or augment a tax adjusted loss.
Pre-trading expenses incurred by another company
What happens when a company incurs pre-trading expenses, but another separate company commences the actual trade?
Revenue have clarified that where a company incurred pre-trading expenses and another (separate) company commenced the actual trade, then the company that commenced the trade may claim relief for that expenditure. The relief cannot be used by the company that incurred it. The new guidance was issued in Revenue’s e-brief 040/19.
It is not necessary for a company that intends to apply this treatment to seek clearance from Revenue. However, all claims made under Section 82 TCA 1997 for pre-trading expenses may be selected for a verification check by Revenue at a later date.
How can we help?
If you have any queries on the above guidance please contact pcolohan@rsmirela