CIRD90200 - R&D tax relief: SME scheme: pre-trading expenditure

CTA09/Ss 1045 - 1048

Normally pre-trading expenditure is treated by CTA09/S61 as incurred on the day that trading begins and so there is no relief for it until trading starts.

If an SME company incurs qualifying R&D expenditure (CIRD81300) in a pre-trading accounting period then the company may make an election to deem 150%,175% in respect of expenditure incurred on or after 1 August 2008 or 200% on or after 1 April 2011 of that qualifying expenditure as a trading loss for that accounting period. If an election is made then CTA09/S61 does not apply to the qualifying R&D expenditure.

The deemed trading loss can be relieved by:

• set off against any other profits it may have for that accounting period under ICTA88/S393A (1)(a),
• set off against any other profits for the previous 12 months under ICTA88/S393A (1)(b) provided that it was entitled to a pre-trading R&D tax relief for that earlier accounting period,
• surrender as group relief,
• surrender for a payable tax credit (CIRD90500),
• carry forward as a loss of the future trade to be derived from the R&D under ICTA88/S393.

Conditions for the election

The election for deemed losses for an accounting period:

• must be made by notice in writing to an officer of the Board,
• must be made within 2 years of the end of the accounting period to which it relates,
• applies to all of the company’s qualifying R&D expenditure.

If the company claims to treat its qualifying pre-trading expenditure as a loss the expenditure is not treated as incurred on the first day of trading under CTA09/S61.