Finance Bill

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Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 2 — Amendments of other enactments
326

11
In section 237(1) (exceptions to section 236), after “liability is not” insert “AIA
qualifying expenditure or”.
12    (1)
Section 241 (no first-year allowance in respect of additional VAT liability) is
amended as follows.
      (2)
In subsection (1)(b), before “a first-year” insert “an annual investment
allowance or”.
      (3)
In subsection (2), for “A first-year allowance is not” substitute “No annual
investment allowance or first-year allowance is”.
      (4)
In subsection (3), after “Any” insert “annual investment allowance or”.
      (5)
In the heading, after “No” insert “annual investment allowance or”.
13
In section 263(3) (qualifying activities carried on in partnership), after “Any”
insert “annual investment allowance,”.
14
In section 265(4) (successions: general), after “to” insert “an annual
investment allowance or”.
15
In Part 2 of Schedule 1 (index of defined expressions), insert at the
appropriate place—

“AIA qualifying expenditure
section 38A”

Part 2
Amendments of other enactments
ICTA
16
ICTA is amended as follows.
17
In section 395(1)(c) (leasing contracts and company reconstructions), after
“for which” insert “an annual investment allowance or”.
18
In paragraph 1(6)(b)(i) of Schedule 18 (group relief), before “a first-year”
insert “an annual investment allowance or”.
FA 2000
19    (1)
Schedule 22 to FA 2000 (tonnage tax) is amended as follows.
      (2)
In paragraph 87(1)(a), for “a first-year allowance shall not” substitute “no
annual investment allowance or first-year allowance is to be”.
      (3)
In paragraph 94(2), after “any” insert “annual investment allowance or”.
ITA 2007
20
ITA 2007 is amended as follows.
21
In section 76 (first-year allowances)—
(a)
after “from” insert “an annual investment allowance or”, and

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
327

(b)
in the heading, after “allowances” insert “and annual investment
allowances”.
22
In section 78 (arrangements to reduce tax liabilities)—
(a)
in subsection (1)(a), after “the” insert “annual investment allowance
or”, and
(b)
in the heading, after “allowances” insert “and annual investment
allowances”.
Part 3
Commencement
23    (1)
This Schedule has effect in relation to expenditure incurred on or after the
relevant date.
      (2)
In relation to a chargeable period which—
(a)
begins before the relevant date, and
(b)
ends on or after the relevant date,

the maximum allowance under section 51A of CAA 2001 is to be calculated
as if the period beginning with the relevant date and ending with the end of
the chargeable period were the chargeable period.
      (3)
The relevant date is—
(a)
for corporation tax purposes, 1 April 2008, and
(b)
for income tax purposes, 6 April 2008.
Schedule 25
Section 77

First-year tax credits
Part 1
Amendments of CAA 2001
1
CAA 2001 is amended as follows.
2
In section 2(3) (general means of giving effect to capital allowances), for
“262” substitute “262A”.
3     (1)
Section 3 (claims for capital allowances) is amended as follows.
      (2)
In subsection (1), after “Act” insert “, and no first-year tax credit is to be paid
under Schedule A1,”.
      (3)
After subsection (2A) insert—
“(2B)
Any claim for a first-year tax credit under Schedule A1 must be
separately identified as such in the return.”

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
328

4
After section 262 insert—
“First-year tax credits
262A
First-year tax credits
Schedule A1 contains provision about the payment of first-year tax
credits to companies in connection with certain first-year qualifying
expenditure.”
5
Before Schedule 1 insert—
“Schedule A1
Section 262A

       First-year tax credits
Part 1
                      Entitlement to first-year tax credits
Entitlement to first-year tax credits
1     (1)
A company may claim a first-year tax credit for a chargeable
period in which it has a surrenderable loss, unless it is an excluded
company in relation to that chargeable period.
      (2)
A company has a surrenderable loss in a chargeable period if in
that chargeable period—
(a)
a first-year allowance is made to the company in respect of
relevant first-year expenditure (see paragraph 3) incurred
for the purposes of a qualifying activity the profits of
which are chargeable to corporation tax, and
(b)
the company incurs a loss in carrying on that qualifying
activity (see paragraphs 4 to 9).
      (3)
The amount of the surrenderable loss is equal to—
(a)
so much of the loss incurred in carrying on the qualifying
activity as is unrelieved (see paragraphs 10 to 16), or
(b)
if less, the amount of the first-year allowance made in
respect of the relevant first-year expenditure in the
chargeable period in question.
      (4)
A company is an excluded company in relation to a chargeable
period if at any time during that period it is entitled to make a
claim under—
(a)
section 488 of ICTA (rent etc of co-operative housing
associations disregarded for tax purposes),
(b)
section 489 of that Act (rent etc of self-build societies
disregarded for tax purposes),
(c)
section 505 of that Act (exemption from tax for charitable
companies), or
(d)
section 508 of that Act (exemption from tax for scientific
research organisations).

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
329

Amount of first-year tax credit
2     (1)
The amount of the first-year tax credit to which a company is
entitled for a chargeable period in which it has a surrenderable
loss is an amount equal to—
(a)
19% of the amount of the surrenderable loss for the
chargeable period, or
(b)
if the amount mentioned in paragraph (a) exceeds the
upper limit, the upper limit.
      (2)
The upper limit is the greater of—
(a)
the total amount of the company’s PAYE and NICs
liabilities for payment periods ending in the chargeable
period (see paragraph 17), and
(b)
£250,000.
      (3)
A company which is entitled to an amount of first-year tax credit
may claim the whole amount or part only of the amount.
      (4)
The Treasury may by order substitute for the percentage for the
time being specified in sub-paragraph (1)(a) such other percentage
as it thinks fit.
      (5)
An order under sub-paragraph (4) may make such incidental,
supplemental, consequential and transitional provision as the
Treasury thinks fit.
Meaning of “relevant first-year expenditure”
3     (1)
In this Schedule “relevant first-year expenditure” means
expenditure which—
(a)
is first-year qualifying expenditure by virtue of section
45A (energy-saving plant or machinery) or section 45H
(environmentally beneficial plant or machinery), and
(b)
is incurred in the period beginning with 1 April 2008 and
ending with 31 March 2013,

but does not include expenditure which is treated as first-year
qualifying expenditure within paragraph (a) by virtue of section
236 (additional VAT liability treated as expenditure).
      (2)
In determining whether expenditure is relevant first-year
expenditure, any effect of section 12 on the time at which it is to be
treated as incurred is to be disregarded.
      (3)
The Treasury may by order substitute, for the date for the time
being specified in sub-paragraph (1)(b) as the date with which the
period ends, such later date as it thinks fit.
      (4)
An order under sub-paragraph (3) may make such incidental,
supplemental, consequential and transitional provision as the
Treasury thinks fit.
Incurring a loss in carrying on a qualifying activity
4
Paragraphs 5 to 9 apply for the interpretation of paragraph 1(2)(b).

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
330

5     (1)
This paragraph applies where the qualifying activity is a Schedule
A business other than a furnished holiday lettings business and
paragraph 7 does not apply.
      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss incurred in carrying on that part of
the business (if any) to which section 392A of ICTA (Schedule A
losses) applies.
6     (1)
This paragraph applies where the qualifying activity is an
overseas property business and paragraph 7 does not apply.
      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss incurred in carrying on that part of
the business (if any) to which section 392B of ICTA (losses from
overseas property business) applies.
7     (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.
      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss which is 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 of
subsection (7) of that section.
      (3)
Where the insurance company is treated under section 432AA of
that Act as carrying on more than one Schedule A business or
overseas property business, references in this Schedule to a loss
incurred in carrying on the qualifying activity are to be construed
in accordance with section 432AB(4) of that Act (aggregation of
losses).
8     (1)
This paragraph applies where the qualifying activity is managing
the investments of a company with investment business.
      (2)
The company incurs a loss in carrying on that activity in a
chargeable period if in that chargeable period—
(a)
the sum of the expenses and charges mentioned in section
75(8)(a) and (b) of ICTA, exceeds
(b)
the amount of the profits from which those expenses and
charges are deductible,

and the amount of the loss is the amount of the excess.
9     (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 company incurs a loss in a chargeable period if in that
chargeable period an amount falls to be carried forward to a
succeeding chargeable period under section 76(12) of ICTA
(carrying forward unrelieved expenses).
      (3)
The amount of the loss is the amount which falls to be so carried
forward.

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
331

Unrelieved loss
10
Paragraphs 11 to 16 apply for the interpretation of paragraph
1(3)(a).
11    (1)
This paragraph applies where the qualifying activity is a trade or
a furnished holiday lettings business and paragraph 14 or 16 does
not apply.
      (2)
The amount of the loss that is unrelieved is the amount of the loss,
reduced by the amount of—
(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
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),
(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—
(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
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),
(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).
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—
(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,

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
332

(b)
any loss that was or could have been surrendered under
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
(d)
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 392A(2)
of ICTA.
13    (1)
This paragraph applies where the qualifying activity is an
overseas property business and paragraph 14 does not apply.
      (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)
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.
      (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
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—
(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).
      (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
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