Some businesses may be set up to exploit an item of intellectual
property (for example, in the case of biotechnology or other
‘hi-tech’ companies, a patent). They may raise
substantial amounts of capital on the strength of this. But at the
initial stages no decision may have been taken as to how best to
realise the value of the patent (the business could develop,
manufacture and sell a product, it could license the patent to
others to do this, or it could undertake a combination of both).
Large sums may be spent on research and development before the
business decides what route to follow.
Until the business has decided how it will go about
exploiting the patent it is unlikely to meet the criteria for
commencing to trade. So its activities will be entirely
preparatory. One result of this is that the losses arising from the
initial activities are not trading losses. So they cannot be offset
against other income (from, for example, the investment of the
initial funding). But some relief may be available under the
provisions for research and development tax incentives in FA00 or
as pre-trading expenditure (
BIM46351).
