Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
303

(a)
any relief that was or could have been obtained by the
company making a claim under section 393A(1)(a) of ICTA
to set the loss against profits of whatever description of the
same chargeable period,
(b)
any other relief obtained by the company making a claim
5
under section 393A(1)(b) or 393B(3) of that Act (losses set
against profits of an earlier chargeable period),
(c)
any loss that was or could have been surrendered under
section 403(1) of that Act (surrender of relief to group or
consortium members),
10
(d)
any loss surrendered under a relevant tax credit provision,
and
(e)
any amount set off against the loss under section 400 of
that Act (write-off of government investment).
      (3)
For this purpose no account is to be taken of any losses—
15
(a)
brought forward from an earlier chargeable period under
section 393(1) of ICTA,
(b)
carried back from a later chargeable period under section
393A(1)(b) or 393B(3) of that Act, or
(c)
incurred on a leasing contract (within the meaning of
20
section 395 of that Act) in circumstances to which that
section applies.
      (4)
In sub-paragraph (2)(d) “relevant tax credit provision” means—
(a)
Part 2 of Schedule 20 to FA 2000 (tax credits for
expenditure on research and development),
25
(b)
Part 3 of Schedule 22 to FA 2001 (tax credits for
remediation of contaminated land),
(c)
Part 2 of Schedule 13 to FA 2002 (tax credits for
expenditure on vaccine research), and
(d)
Part 1 of Schedule 5 to FA 2006 (film tax credits).
30
12    (1)
This paragraph applies where the qualifying activity is a Schedule
A business other than a furnished holiday lettings business and
paragraph 14 does not apply.
      (2)
The amount of the loss that is unrelieved is the amount of the loss,
reduced by the amount of—
35
(a)
any relief that was or could have been obtained by the
company making a claim under section 392A(1) of ICTA to
set the loss against profits of whatever description of the
same chargeable period,
(b)
any loss that was or could have been surrendered under
40
section 403(1) of that Act (surrender of relief to group or
consortium members),
(c)
any loss surrendered under Part 3 of Schedule 22 to FA
2001 (tax credits for remediation of contaminated land),
and
45
(d)
any amount set off against the loss under section 400 of
ICTA (write-off of government investment).

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
304

      (3)
For this purpose, no account is to be taken of any losses brought
forward from an earlier chargeable period under section 392A(2)
of ICTA.
13    (1)
This paragraph applies where the qualifying activity is an
overseas property business and paragraph 14 does not apply.
5
      (2)
The amount of the loss that is unrelieved is the amount of the loss,
reduced by any amount set off against the loss under section 400
of ICTA (write-off of government investment).
      (3)
For this purpose, no account is to be taken of any losses brought
forward from an earlier chargeable period under section 392B(1)
10
of ICTA.
14    (1)
This paragraph applies where—
(a)
the qualifying activity is a Schedule A business or an
overseas property business, and
(b)
the company is an insurance company.
15
      (2)
If no amount falls to be carried forward to a succeeding chargeable
period under section 76(12) of ICTA (carrying forward unrelieved
expenses), no amount of the loss is unrelieved.
      (3)
If an amount falls to be carried forward to a succeeding chargeable
period under section 76(12) of that Act, the amount of the loss that
20
is unrelieved is equal to the lesser of—
(a)
the amount of the loss (see paragraph 7), reduced by any
amount within sub-paragraph (4), and
(b)
the total amount which so falls to be carried forward.
      (4)
The amounts mentioned in sub-paragraph (3)(a) are—
25
(a)
the amount of any loss surrendered under Part 3 of
Schedule 22 to FA 2001 (tax credits for remediation of
contaminated land), and
(b)
any amount set of against the loss under section 400 of
ICTA (write-off of government investment).
30
      (5)
Sub-paragraph (6) applies for determining whether there is an
amount which falls to be carried forward under section 76(12) of
ICTA.
      (6)
Disregard any amounts brought forward from an earlier
chargeable period and treated for the purposes of section 76 of that
35
Act as expenses payable which fall to be brought into account—
(a)
in accordance with Step 7 in subsection (7) of that section,
by virtue of a previous application of subsection (12) or
(13) of that section, or
(b)
in accordance with Step 3 in subsection (7) of that section,
40
by virtue of paragraph 4(4) of Schedule 11 to FA 1996 (loan
relationships deficit carried forward and so brought into
account).
15    (1)
This paragraph applies where the qualifying activity is managing
the investments of a company with investment business.
45

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
305

      (2)
The amount of the loss that is unrelieved is the amount of the loss
(see paragraph 8), reduced by the amount of—
(a)
any loss that was or could have been surrendered under
section 403(1) of ICTA (surrender of relief to group or
consortium members), and
5
(b)
any amount set off against the loss under section 400 of
that Act (write-off of government investment).
      (3)
For this purpose, no account is to be taken of any amount brought
forward from an earlier chargeable period under section 75(9) of
that Act.
10
16    (1)
This paragraph applies where the qualifying activity is life
assurance business and the profits of that business are charged to
tax under the I minus E basis.
      (2)
The amount of the unrelieved loss is the amount of the loss (see
paragraph 9), reduced by—
15
(a)
any loss surrendered under Part 4 of Schedule 22 to FA
2001 (tax credits for remediation of contaminated land),
and
(b)
any amount set off against the loss under section 400 of
ICTA (write-off of government investment).
20
      (3)
For this purpose, no account is to be taken of any amounts brought
forward from an earlier chargeable period and treated for the
purposes of section 76 of ICTA as expenses payable which fall to
be brought into account for the period in question—
(a)
in accordance with Step 7 in subsection (7) of that section,
25
by virtue of a previous application of subsection (12) or
(13) of that section, or
(b)
in accordance with Step 3 in subsection (7) of that section,
by virtue of paragraph 4(4) of Schedule 11 to FA 1996 (loan
relationships deficit carried forward and so brought into
30
account).
Total amount of company’s PAYE and NICs liabilities
17    (1)
For the purposes of paragraph 2(2)(a) the total amount of the
company’s PAYE and NICs liabilities for a payment period is the
total of—
35
(a)
the amount of income tax for which the company is
required to account to HMRC for that period under the
PAYE regulations, disregarding any deduction the
company is authorised to make in respect of child tax
credit or working tax credit, and
40
(b)
the Class 1 national insurance contributions for which the
company is required to account to HMRC for that period,
disregarding any deduction the company is authorised to
make in respect of payments of statutory sick pay,
statutory maternity pay, child tax credit or working tax
45
credit.

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
306

      (2)
A “payment period” means a period which ends on the 5th day of
a month and for which the company is liable to account for income
tax and national insurance contributions to HMRC.
Part 2
Giving effect to first-year tax credits
5
Payment in respect of first-year tax credit
18    (1)
Where a company is entitled to a first-year tax credit for a
chargeable period and makes a claim for payment of the credit,
HMRC must pay to the company the amount of the credit.
      (2)
An amount payable in respect of—
10
(a)
a first-year tax credit, or
(b)
interest on a first-year tax credit under section 826 of ICTA,

may be applied in discharging any liability of the company’s to
pay corporation tax.
      (3)
To the extent that it is so applied, HMRC’s obligation under sub-
15
paragraph (1) is discharged.
      (4)
Where HMRC enquires into the company’s company tax return
for the chargeable period, no payment in respect of a first-year tax
credit for that chargeable period need be made before HMRC’s
enquiries are completed (see paragraph 32 of Schedule 18 to FA
20
1998).
      (5)
In those circumstances HMRC may make a payment on a
provisional basis of such amount as it thinks fit.
      (6)
No payment need be made in respect of a first-year tax credit for a
chargeable period before the company has paid to HMRC any
25
amount that it is required to pay for payment periods (within the
meaning of paragraph 17(2)) ending in that chargeable period—
(a)
under the PAYE regulations, or
(b)
in respect of Class 1 national insurance contributions.
Restriction on losses carried forward
30
19    (1)
For the purposes of the relieving provisions (see paragraph 20),
the company’s loss from the qualifying activity for a chargeable
period in which it claims a first-year tax credit is treated as
reduced by the amount of the loss surrendered.
      (2)
For the purposes of this Schedule, the amount of the loss
35
surrendered is—
(a)
where the amount of first-year tax credit mentioned in
paragraph 2(1)(a) is claimed, the whole of the
surrenderable loss for that period, and
(b)
where less than that amount is claimed, a corresponding
40
proportion of the surrenderable loss for that period.
20
The relieving provisions are—

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
307

(a)
where the qualifying activity is a trade or a furnished
holiday lettings business and paragraph 21 or 22 does not
apply, section 393 of ICTA (relief of trading losses against
future profits),
(b)
where the qualifying activity is managing the investments
5
of a company with investment business, section 75(9) of
that Act (relief of expenses and charges against future
profits),
(c)
where the qualifying activity is a Schedule A business
(other than a furnished holiday lettings business) and
10
paragraph 21 does not apply, section 392A(2) of that Act
(relief of Schedule A losses against future profits), and
(d)
where the qualifying activity is an overseas property
business and paragraph 21 does not apply, section 392B of
that Act (relief of overseas property losses against future
15
profits).
21    (1)
This paragraph applies if the qualifying activity is a Schedule A
business or an overseas property business, and in a chargeable
period—
(a)
the company’s loss in carrying on that activity is a loss
20
treated under section 432AB(3) of ICTA, for the purposes
of section 76 of that Act, as expenses payable which fall to
be brought into account at Step 3 in subsection (7) of that
section,
(b)
an amount falls to be carried forward to a succeeding
25
chargeable period under section 76(12) of that Act
(carrying forward unrelieved expenses on income), and
(c)
the company claims a first-year tax credit for the
chargeable period.
      (2)
The total amount which falls to be carried forward to a succeeding
30
chargeable period under section 76(12) of ICTA is treated as
reduced by the amount of the loss surrendered.
22    (1)
This paragraph applies where the qualifying activity is life
assurance business and the profits of that business are charged to
tax under the I minus E basis.
35
      (2)
For the purposes of section 76 of ICTA, the total amount which
may—
(a)
be carried forward under subsection (12) of that section
from a chargeable period in which the company claims a
first-year tax credit, and
40
(b)
be brought into account for the next chargeable period in
accordance with Step 7 in subsection (7) of that section,

is treated as reduced by the amount of the loss surrendered.
Payment in respect of first-year tax credit not income
23
A payment in respect of a first-year tax credit is not income of the
45
company for any tax purposes.

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
308

Part 3
Clawback of first-year tax credit
Circumstances in which first-year tax credit clawed back
24    (1)
This paragraph applies where—
(a)
a company to which a first-year tax credit is paid for a
5
chargeable period disposes of an item of tax-relieved plant
or machinery before the end of the clawback period in
relation to that item, and
(b)
after the disposal the amount (or the aggregate of the
amounts) of the original expenditure on the retained tax-
10
relieved plant and machinery is less than the amount of
loss surrendered under this Schedule in the chargeable
period for which the first-year tax credit was paid.
      (2)
The appropriate part (“the restored loss”) of the loss surrendered
under this Schedule in that chargeable period is to be treated as if
15
it were not a surrenderable loss in that chargeable period.
      (3)
The amount of the restored loss is to be calculated in accordance
with paragraph 26.
      (4)
The amount of first-year tax credit paid to the company in respect
of the restored loss is to be treated as if it ought never to have been
20
paid.
      (5)
The amount of first-year tax credit paid to the company in respect
of the restored loss is the relevant percentage of the restored loss.
      (6)
“Relevant percentage” means the percentage specified in
paragraph 2(1)(a) for the chargeable period for which the first-year
25
tax credit is paid.
      (7)
This Part of this Schedule applies to an amount of first-year tax
credit which is payable for a chargeable period but not yet paid, as
it applies to an amount of first-year tax credit which is paid.
Interpretation
30
25    (1)
This paragraph applies for the interpretation of this Part of this
Schedule.
      (2)
References to a first-year tax credit being paid include the case
where an amount payable in respect of first-year tax credit is
applied in discharging any liability of the company’s to pay
35
corporation tax.
      (3)
An item of plant or machinery is tax-relieved if any expenditure
on the item was relevant first-year expenditure in respect of which
a first-year allowance was made for the chargeable period for
which the first-year tax credit was paid.
40
      (4)
The original expenditure on the item is the amount of the relevant
first-year expenditure on the item.

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
309

      (5)
A company disposes of an item of tax-relieved plant or machinery
if—
(a)
an event listed in section 61(1) occurs in relation to the
item, or
(b)
there is a change in the ownership of the item in relation to
5
which a continuity of business provision applies.
      (6)
The disposal value of the item is the disposal value required to be
brought into account by the company in respect of the item.
      (7)
But where—
(a)
the company disposes of the item to a person connected
10
with the company for less than its market value, or
(b)
there is a change in the ownership of the item in relation to
which a continuity of business provision applies,

the disposal value of the item is its market value (whether or not
the company is required to bring that value into account).
15
      (8)
A “continuity of business provision” is an enactment under which
anything done to or by the company which ceases to be the owner
of the item is treated, for the purpose of making allowances and
charges under this Act, as having been done to or by the person
who becomes the owner of the item.
20
      (9)
The retained tax-relieved plant and machinery is the tax-relieved
plant and machinery which the company has not disposed of.
     (10)
The clawback period, in relation to an item of tax-relieved plant
and machinery—
(a)
begins when the relevant first-year expenditure on the
25
item is incurred, and
(b)
ends 4 years after the end of the chargeable period for
which the tax credit was paid.
Amount of restored loss
26    (1)
The amount of the restored loss is—
30

but where the amount given by that formula is less than nil, the
amount of the restored loss is nil.
      (2)
In sub-paragraph (1)—
LS is the amount of loss surrendered under this Schedule in
the chargeable period for which the first-year tax credit
35
was paid,
OERPM is the amount (or the aggregate of the amounts) of
the original expenditure on the retained tax-relieved plant
and machinery after the item is disposed of,
OE is the aggregate of the amount of the original expenditure
40
on the item disposed of, and the amounts of the original
expenditure on any items of tax-relieved plant and
machinery which the company has previously disposed of,
DV is the aggregate of the disposal value of the item disposed
of, and the disposal values of any items of tax-relieved
45