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One company, 2 businesses. Pre-trading expenditure

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A company that was renting out residential properties bought some land with the view to building lodges to rent out. It has since sold the residential properties but hasn't yet built any lodges. It's incurring some expenditure - mainly loan interest. I'm not sure how to treat this expenditure. My initial thought was it creates a loss to carry forward, as it was already in property business renting houses. However I'm not sure if the 2 activities are close enough to be classed as the same business?   

If it's the case that the residential letting business has in fact ceased, there's the question of when the new business commences, which I think would be when they are in the position to offer the lodges out to rent. If that's the case, the expenditure currently being incurred would be pre-trading expenditure. How would I deal with that in company accounts? Is it included as some kind of prepayment and transferred to the P&L when trade starts? I've never come across this situation before.

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By David Ex
05th Dec 2021 14:10

Not sure using the term “business” is helpful. Think you need to consider trade vs investment (non-trade?) activity.

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Replying to David Ex:
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By daviddaniels
05th Dec 2021 14:49

I know what you mean. I used that phrase as HMRC's guidance refers to a 'property business'.

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By Tax Dragon
06th Dec 2021 09:59

Your OP starts out as if you are going to ask a tax question, but it seems to become an accounting question part way through. For tax, follow tax law; for accounts, follow UK GAAP. They are often not the same.

For the tax law, read CTA 2009 Pt4 Ch2. It's very short. It directly answers the question I thought you were going to ask. (Of course it doesn't answer the question you ended up asking.) Bonus: it also answers David's question.

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By paul.benny
06th Dec 2021 12:37

FRS105 is offers no flexibility: borrowing costs go to P&L when incurred.

If reporting under FRS102, you *may* capitalise borrowing costs - see section 25 for the specific criteria about when you may and may not do so.

FRS can be freely downloaded from the FRC website.

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By paul.benny
06th Dec 2021 13:12

I see the OP has not been too busy to request anonymity today*.

But too busy to acknowledge/thank those responding.

* I suppose he could have submitted the request to site admin before today's responses.

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Replying to paul.benny:
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By Hugo Fair
06th Dec 2021 13:41

No idea when he submitted the request, but it has only been partially implemented ... see 2nd post in this thread at 05th Dec 2021 14:49
Having said which I can't see why anonymity is required for a straight accounting treatment question.

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Replying to Hugo Fair:
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By Tax Dragon
06th Dec 2021 14:14

So it is a straight accounting treatment question?

I'm so annoyed I fell for the dummy… so thought it was shaping up to be about tax. (There's even the two-handed carry of a tax tag.)

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Replying to Tax Dragon:
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By paul.benny
06th Dec 2021 15:38

I thought it was a tax question until you alerted me to it being an accounting one. Maybe it's both?

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Replying to Hugo Fair:
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By paul.benny
06th Dec 2021 14:17

Long standing regular poster too.

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Replying to Hugo Fair:
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By David Ex
06th Dec 2021 15:38

Quote:

Having said which I can't see why anonymity is required for a straight accounting treatment question.

Seems strange, indeed!

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By daviddaniels
07th Dec 2021 10:42

I apologise if I've offended anyone, it was not my intention. I always try to thank or reply to anyone who has taken time out to offer advice or their opinion. As someone who works on their own and doesn't have colleagues to discuss matters with, it's often helpful/reassuring to hear other peoples views.

I didn't request anonymity, I requested that my question be deleted as I realised it was poorly written and didn't really ask the question I intended, and I didn't want to waste anybody's time. Accountingweb replied saying it wasn't their policy to delete questions, just make them anonymous. I didn't think that would be a problem.

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Replying to daviddaniels:
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By paul.benny
07th Dec 2021 11:02

Thank you for returning and explaining the anonymity.

I think people have attempted to answer both the possible questions in the OP (ie what's the accounting treatment and what's the tax treatment). What was the question you intended to ask?

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