CFM32100 - Loan relationships: non-trading deficits: pre-trading expenditure

CTA09/S330

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 does not have enough income to fully relieve the deficit.

If this deficit arises in a pre 1 April 2017 period, relief may be limited, because a pre 1 April 2017 non-trading deficit carried forward cannot be set against trading profits. This difficulty is diminished for post-2017 deficits as these can typically be carried forward and set against profits of any kind, including trading profits.

The company can elect, under CTA09/S330, that a debit is not 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.

Non-resident companies carrying on a UK property business

S330 does not apply to companies carrying on a property business.

In addition, a non-UK resident company, if it is not carrying on a trade in the UK through a UK permanent establishment or carrying on a trade of developing or dealing in UK land will not have an accounting period until it starts to carry on a UK property business. See CFM32110 and CFM51095 for details of CTA09/S330ZA and CTA09/S607ZA which allow relief for certain financing costs incurred by a non-resident company prior to the commencement of a UK property business.