We have two companies in a group. Each company runs a separate outlet. Company A is up and running and makes a nice profit. Company B has been setting up in the accounting period (AP) in question and has incurred multiple costs but has not yet started trading at the end of the AP. Trade is due to start shortly. Am I right in thinking that as company B is not yet trading, we cannot group relieve company B’s loss or claim any capital allowances in this AP as they are pre-trading costs which will be treated as being incurred on day 1 of trading – so claimable in AP2? Or, as the group is trading as a whole, can we claim in AP1?
In principle, you are correct that company B pre-trading expenditure can only be relieved on the first day of B trading. So, group relief for the benefit of company A would not be available before then. However, pre-trading interest paid by company B has slightly different rules in that it can create a non-trading deficit in B that: (a) can be deducted from the taxable profits of that period (not very likely since the company has not yet started to trade – see HMRC’s Corporate Finance Manual at CFM32100); or (b) can be carried back against loan relationship profits of the previous 12 months; or (c) can be carried forward (see CFM32000). Although generally, loan relationship deficits can be group relieved (see CFM32090). I have not yet seen anywhere that a loan relationship deficit created by pre-trading expenditure can be group relieved in the current year.