ExpertEasy2 marksMultiple Choice
ACCA · Question 18 · Corporation tax liabilities
Section B - Case 1 (NovaStream Ltd)
Prior to commencing trade on 1 January 2023, NovaStream Ltd incurred £12,000 on market research and £8,000 on domain registration in November 2022.
How are these pre-trading expenses treated for Corporation Tax purposes?
Section B - Case 1 (NovaStream Ltd)
Prior to commencing trade on 1 January 2023, NovaStream Ltd incurred £12,000 on market research and £8,000 on domain registration in November 2022.
How are these pre-trading expenses treated for Corporation Tax purposes?
Answer options:
A.
They are not allowable because they were incurred before the company started trading.
B.
They are treated as a trading expense incurred on the actual date of payment in November 2022.
C.
They are treated as a trading expense incurred on 1 January 2023.
D.
They must be capitalized and cannot be deducted from trading profits.
How to approach this question
Recall the rule for pre-trading expenditure: if it would be deductible while trading, it is deemed incurred on day 1 of trading.
Full Answer
C.They are treated as a trading expense incurred on 1 January 2023.✓ Correct
Expenditure incurred before a company starts to trade is allowable as a deduction from trading profits if it was incurred within seven years of commencement and would have been allowable if the company had been trading. The expenditure (£20,000 total) is treated as if it were incurred on the first day of trading (1 January 2023).
Common mistakes
Assuming pre-trading expenses are lost or trying to claim them in an accounting period prior to trading.
Practice the full ACCA TX — Taxation Practice Exam 2
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