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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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R&D tax relief: SME scheme: pre-trading expenditure

CTA09/Ss 1045 - 1048

Normally pre-trading expenditure is treated by CTA09/S61 as incurred on the day that trading begins and so there is no relief for it until trading starts.

If an SME company incurs qualifying R&D expenditure (CIRD81300) in a pre-trading accounting period then the company may make an election to deem 230% of that qualifying expenditure as a trading loss for that accounting period. If an election is made then CTA09/S61 does not apply to the qualifying R&D expenditure.

For periods on or after 1 April 2000, the deemed trading loss equates to 150% of the qualifying expenditure,175% in respect of expenditure incurred on or after 1 August 2008,  200% on or after 1 April 2011 and 225% on or after 1 April 2012 and 230% on or after 1 April 2015

The deemed trading loss can be relieved by:

  • set off against any other profits it may have for that accounting period under CTA10/S37(1)-(8),
  • set off against any other profits for the previous 12 months under CTA10/S37(3)(b) and S42 provided that it was entitled to a pre-trading R&D tax relief for that earlier accounting period,
  • surrender as group relief,
  • surrender for a payable tax credit (CIRD90500),
  • carry forward as a loss of the future trade to be derived from the R&D under CTA10/S45.

Conditions for the election

The election for deemed losses for an accounting period:

  • must be made by notice in writing to an officer of Revenue and Customs,
  • must be made within 2 years of the end of the accounting period to which it relates,
  • applies to all of the company’s qualifying R&D expenditure.

If the company claims to treat its qualifying pre-trading expenditure as a loss the expenditure is not treated as incurred on the first day of trading underCTA09/S61.