Corporation Tax Act 2009 section 1048

Treatment of deemed trading loss under section 1045

Section 1048 explains the restrictions on how a deemed trading loss arising from pre-trading R&D expenditure under the SME scheme can be used, and what happens to any unused portion of that loss when the company eventually starts trading.

• A deemed trading loss from pre-trading R&D expenditure cannot be carried back to an earlier accounting period unless the company was also entitled to section 1045 relief for that earlier period.
• If the company later starts a trade derived from the R&D, any unused and unsurrendered portion of the deemed loss is treated as a brought-forward trading loss available against future profits.
• The rules for how the loss is carried forward differ depending on whether the deemed loss-making period began before or on/after 1 April 2017, reflecting changes in loss relief legislation from that date.
• Any losses carried forward under these provisions are subject to a further restriction where the company has claimed an R&D tax credit in respect of the same loss.