Introduction to this document

Election for pre-trading debits

Costs incurred on financing your company, e.g. loan interest, before it starts to trade are classed as non-trading debits. Normally, tax relief for these can only be  obtained by offsetting them against non-trading credits, e.g. interest received, receivable after trade commences. However, an election can be made to obtain tax relief sooner.

General rule

When a company is formed it will usually spend time and money before trading starts. This might include financial costs, e.g. interest on loans used to pay staff, property refurbishments, etc. This type of expense is classed as non-trading debits under the loan relationship rules. These can be offset to reduce the tax payable on non-trading credits, e.g. credit interest.

Typically it takes many years for a start-up company to generate non-trade credits sufficient to use the tax relief allowed for non-trading debits, if indeed this ever happens.


treatment as trading expenses

There is a solution by means of an election under s.330 Corporation Tax Act 2009.

Where an election is made, the finance costs are not treated as a non-trading debit, but as a trading expense once the company starts to trade. These will be tax deductible from income for the first accounting period after trading commences as if they were incurred on the first day of trade.

In order to use this election, a number of conditions have to be met:

  • the company must make the election within two years of the end of the accounting period in which the debit arises
  • the company must begin to trade within seven 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.

HMRC’s guidance says that in order for the election to be valid, the expenses must be incurred in a corporation tax (CT) accounting period. A CT accounting period will not exist until a company has a source of income. Where there is no trade, the easiest way to start a CT accounting period is to open an interest-bearing bank account.


Making the election

The election should be made in writing. We recommend including a schedule specifying the debits that you want the election to cover.

Time limit

The election must be made within two years of the end of the accounting period in which the debit arises.