Corporation Tax Act 2009 section 1045

Alternative treatment for pre-trading expenditure: deemed trading loss

Section 1045 allows a small or medium-sized enterprise that has not yet started trading to claim enhanced R&D tax relief on qualifying research and development expenditure incurred during the pre-trading period, by treating that expenditure as generating a deemed trading loss.

• An SME that incurs qualifying R&D expenditure before it starts trading can elect to treat that expenditure as creating a deemed trading loss in the period the expenditure was actually incurred, rather than waiting until trading begins.
• The deemed trading loss is calculated at 186% of the qualifying Chapter 2 expenditure, and the company must also satisfy an R&D intensity condition (or have met it in the most recent prior 12-month accounting period for which it obtained this relief).
• The company must not be an ineligible company, and it must make a formal election to claim the relief; once the election is made, the normal pre-trading expenses rule in section 61 no longer applies to that expenditure.
• Any deemed trading loss created under this section can be used in the same way as other trading losses — for example, set against other profits or surrendered as group relief — subject to the restrictions on use set out elsewhere in the legislation.