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HMRC internal manual

Corporate Finance Manual

Loan relationships: non-trading deficits: pre-trading expenditure

Debits for pre-trading expenditure

A company intending to carry on a trade may incur expenses, such as interest on a bank loan, before it begins to trade. It may raise debt finance before starting up; it may need to buy stock, refurbish premises, recruit employees and so on. The interest and other expenses relating to the finance are non-trading debits, because no trade is yet carried on.

If there is an overall deficit after aggregating the debits with any non-trading credits, the company is entitled to claim to set the non-trading deficit against any other income of that period (such as property or foreign profits). However, it is more likely that the company hasn’t enough income to fully relieve the deficit. And if it carries the deficit forward to when trading starts, relief may be limited, because a non-trading deficit carried forward under CTA09/S457(2) can’t be set against trading profits.

However, the company can elect, under CTA09/S330, that a debit isn’t brought in as a non-trading debit. Instead, as long as

  • the company makes the election within 2 years of the end of the accounting period in which the debit arises, and
  • the company begins to trade within 7 years of that period, and
  • the debit would have been treated as a trading debit had it been incurred in the period since trading commenced

then the company can treat as a trading expense of that later year a non-trading debit that has not been aggregated with non-trading credits or claimed against other income of that accounting period. If the company fails to start a trade within the period of 7 year then the debit is lost in the same way that pre-trading expenses which are the subject of an election under S330 are lost if a trade does not commence.

The parallel relief for non-loan relationships pre-trading expenditure is at CTA09/S61.

No accounting period

S330 specifically refers to non-trading debits given for an accounting period. There is, therefore, no relief if the company has no source of income, and therefore no accounting period, before trading commences.