CREC071300 - Expenditure credit redemption: Step 2

S1179CC CTA 2009Ìý

Step 2 compares the amount of credit remainingÌýafter Step 1 with the initialÌýamount of credit (before Step 1 is applied) minus a notional tax charge at the main rate of Corporation Tax (CT).Ìý

If the first amount is higher than the second, the first amount is reduced so that it is equal to the second amount before it can be carried forward to Step 3. If the first amount is lower than the second, no reduction occurs.Ìý

»Ê¹ÚÌåÓýapp amount of the reduction, if any, is the amount withheld at Step 2 (CREC071400).Ìý

How to apply Step 2Ìý

A: Find the amount of credit remainingÌýafter Step 1.Ìý

B: Find the initialÌýamount of credit before Step 1 was applied. Reduce this amount as if it were subject to tax at the main rate of CT.Ìý

C: Compare the amounts at A and B. »Ê¹ÚÌåÓýapp smaller amount is the amount that can be carried forward to Step 3.Ìý

D: If the amount at A is higher than the amount at B, deduct the amount at B from the amount at A to find the amount of the reduction. This is the amount withheld at Step 2.


ExamplesÌý

Production Company A had an initialÌýamount of credit of £200,000. After Step 1, it had £125,000 remaining.Ìý

A: »Ê¹ÚÌåÓýapp amount of credit remainingÌýafter Step 1 is £125,000.Ìý
Ìý

B: »Ê¹ÚÌåÓýapp initialÌýamount of credit is £200,000.Ìý
Ìý
Notional tax charge at the main rate of CT (currently 25%): £200,000 x 25% = £50,000Ìý
Initial amount minus notional tax charge: £200,000 - £50,000 = £150,000Ìý
Ìý

C: »Ê¹ÚÌåÓýapp amount at A is £125,000 and the amount at B is £150,000. »Ê¹ÚÌåÓýapp smaller amount of £125,000 is the amount of credit remainingÌýto carry forward to Step 3.Ìý
Ìý

D: »Ê¹ÚÌåÓýapp amount at A is not higher than the amount at B, so D is not needed. »Ê¹ÚÌåÓýappre is no amount withheld at Step 2.


Production Company B had an initialÌýamount of credit of £300,000. After Step 1, it had £260,000 remaining.Ìý

A: »Ê¹ÚÌåÓýapp amount of credit remainingÌýafter Step 1 is £260,000.Ìý
Ìý

B: »Ê¹ÚÌåÓýapp initialÌýamount of credit is £300,000.Ìý
Ìý
Notional tax charge at the main rate of CT (currently 25%): £300,000 x 25% = £75,000Ìý
Initial amount minus notional tax charge: £300,000 - £75,000 = £225,000Ìý
Ìý

C: »Ê¹ÚÌåÓýapp amount at A is £260,000 and the amount at B is £225,000. »Ê¹ÚÌåÓýapp smaller amount of £225,000 is the amount of credit remainingÌýto carry forward to Step 3.Ìý
Ìý

D: Amount at A minus amount at B: £260,000 - £225,000 = £35,000. This is the amount withheld at Step 2.Ìý