CA23176 - PMA: FYA: First-year tax credits: Outline, commencement, amount that may be claimed
CAA01/s262A, CAA01/Sch.A1 para1, para 2, para 23
Background
»Ê¹ÚÌåÓýapp benefit of 100% FYAs (ECAs) for environmentally beneficial or energy saving plant or machinery (known as ‘Enhanced Capital Allowancesâ€� or ‘ECAsâ€�) can be reduced if the business is loss making, particularly where the tax losses cannot be relieved for a number of years because the business has insufficient profits to absorb the losses. »Ê¹ÚÌåÓýapp introduction of first-year tax credits (also referred to as ‘payable ECAsâ€�) increases the benefit of ECAs, made in respect of certain environmentally friendly plant and machinery, to loss making companies.
First-year tax credits are repealed with effect for expenditure incurred on or after 1 April 2020 (FA19/S33).
Outline
A company may claim a payable first-year tax credit for a chargeable period if
- it incurs relevant first-year expenditure (CA23179) for a qualifying activity (CAA2001/s15) and has received an FYA in respect of that expenditure,
- it makes a loss in carrying on the qualifying activity (CA23181) and that loss, or part of that loss, is surrenderable,
- it is within the charge to corporation tax on the profits from that qualifying activity, and
- it is not an excluded company (CA23185) in that chargeable period.
A company may surrender all or part of its surrenderable loss. Once a loss has been surrendered for a tax credit payment it is not available for relief in any other way.
Any losses carried forward to future accounting periods are reduced by the amount of loss surrendered for a first-year tax credit.
A first-year tax credit is not taxable income of the company.
Interaction with other payable tax credits
A loss making company may make claims both for first-year tax credits and one or more of the other payable tax credits available (R&D tax credits for instance). A loss may only be surrendered once, but whether the surrender is solely for a first-year tax credit, solely for an R&D tax credit (say) or a combination of the two is for the company to decide; there is no prescribed order of surrender. »Ê¹ÚÌåÓýapp company will need to make clear in its return which of the tax credit schemes it is claiming under and the quantum of each of the various claims.
Example
A trading company makes a loss of £200,000 in its accounting period ending 31 December 2010. It has qualifying first-year expenditure of £150,000 and qualifying R & D expenditure of £100,000. If it surrenders the loss of £200,000 it can allocate it £150,000 to first-year tax credits and £50,000 R & D or £100,000 FYA and £100,000 R & D or anything in between those figures. It cannot surrender both £150,000 FYA and £100,000 R & D because together they amount to more than the loss of £200,000.
Surrenderable loss
»Ê¹ÚÌåÓýapp surrenderable loss is the lesser of: