Commentary on Sections Overview Overview Section 1045: Alternative treatment for pre-trading expenditure: deemed trading loss
2713.This section allows a small or medium-sized enterprise to claim immediate relief for qualifying research and development expenditure incurred in a pre-trading period. It is based on paragraphs 1 and 14 of Schedule 20 to FA 2000.
2714.The usual treatment of expenditure incurred before a company starts trading is given by section 61 in Part 3 (trading income). Expenditure incurred up to seven years before the day the company starts to trade is treated as incurred on that day if it would have been deductible had the company been trading when the expenditure was incurred.
2715.This section allows the company to elect for pre-trading expenditure to create a deemed trade loss for the accounting period in which it was actually incurred. Subject to the restrictions in sections 1048 and 1049 the loss can be used in the same way as other trade losses. It can be set off against other profits under section 393A of ICTA or surrendered as group relief. Any part of the loss not used is carried forward. See the commentary on section 1048.
2716.If the company is entitled to relief because it has made an election under this section, subsection (8) provides that the expenditure is not allowed again under the ordinary rules in section 61 for dealing with pre-trading expenditure.
2717.The company has to meet the other qualifying conditions for the relief. In particular the pre-trading expenditure must exceed the threshold for relief (see subsection (3)) See the commentary on section 1050(5)(b) for more details on the treatment of pre-trading expenditure for the purposes of the threshold test.
2718.This section makes clear that relief is given only to companies liable to corporation tax. See Change 77 in Annex 1 and the commentary on section 1039 (overview of Part).