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HMRC internal manual

Business Income Manual

Computing the amount to assess: business changes: commencement: high technology businesses

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 S1045 Corporation Tax Act 2009 or as pre-trading expenditure (BIM46351).