Finance Bill

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Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
333

(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
account).
15    (1)
This paragraph applies where the qualifying activity is managing
the investments of a company with investment business.
      (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
(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.
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—
(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).
      (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,
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
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—
(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
(b)
the Class 1 national insurance contributions for which the
company is required to account to HMRC for that period,

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
334

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
credit.
      (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
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—
(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-
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
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
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
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
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

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
335

(b)
where less than that amount is claimed, a corresponding
proportion of the surrenderable loss for that period.
20
The relieving provisions are—
(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
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
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
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
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
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
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.
      (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
(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.

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
336

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
company for any tax purposes.
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
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-
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
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
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
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
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
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

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
337

a first-year allowance was made for the chargeable period for
which the first-year tax credit was paid.
      (4)
The original expenditure on the item is the amount of the relevant
first-year expenditure on the item.
      (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
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
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).
      (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.
      (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
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—

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
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
on the item disposed of, and the amounts of the original

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
338

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
plant and machinery which the company has previously
disposed of, and
ARL is the amount of the restored loss (or the aggregate of the
amounts of the restored loss) on any previous application
of this paragraph.
Clawback of first-year tax credits: administrative provision
27    (1)
Where paragraph 24 applies, all such assessments and
adjustments of assessments are to be made as are necessary.
      (2)
If a company which has made a tax return becomes aware that, as
a result of that paragraph applying after the return was made, the
return has become incorrect, it must give notice to HMRC
specifying how the return needs to be amended.
      (3)
The notice must be given within 3 months beginning with the day
on which the company became aware that anything in the tax
return had become incorrect because of paragraph 24.
Part 4
Supplementary
Artificially inflated claims
28    (1)
To the extent that a transaction is attributable to arrangements
entered into wholly or mainly for a disqualifying purpose, it shall
be disregarded in determining for a chargeable period the amount
of any first-year tax credit to which a company is entitled under
this Schedule.
      (2)
Arrangements are entered into wholly or mainly for a
disqualifying purpose if their main object, or one of their main
objects, is to enable a company to obtain a first-year tax credit—
(a)
to which it would not otherwise be entitled, or
(b)
of a greater amount than that to which it would otherwise
be entitled.
      (3)
“Arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.
Interpretation
29
In this Schedule—
“HMRC” means the Commissioners for Her Majesty’s
Revenue and Customs;
“national insurance contributions” means contributions
under Part 1 of the Social Security Contributions and
Benefits Act 1992 or Part 1 of the Social Security
Contributions and Benefits (Northern Ireland) Act 1992.”

Finance Bill (Volume II)
Schedule 25 — First-year tax credits
Part 2 — Amendments of other enactments
339

6
In Part 1 of Schedule 1, insert at the appropriate places—

“FA 2000
The Finance Act 2000 (c. 17)”

“FA 2001
The Finance Act 2001 (c. 9)”

“FA 2002
The Finance Act 2002 (c. 23)”.

Part 2
Amendments of other enactments
ICTA
7     (1)
Section 826 of ICTA (interest on tax overpaid) is amended as follows.
      (2)
In subsection (1), after paragraph (f) insert “, or
(g)
a payment of first-year tax credit falls to be made to a
company under Schedule A1 to the Capital Allowances Act.”
      (3)
After subsection (3C) insert—
“(3D)
In relation to a payment of first-year tax credit falling within
subsection (1)(g) above the material date is whichever is the later
of—
(a)
the filing date for the company’s company tax return for the
accounting period for which the tax credit is claimed, and
(b)
the date on which the company tax return or amended
company tax return containing the claim for payment of the
tax credit is delivered to the Commissioners for Her
Majesty’s Revenue and Customs.

For this purpose “the filing date”, in relation to a company tax return,
has the same meaning as in Schedule 18 to the Finance Act 1998.”
      (4)
In subsection (8A)(b)(ii), after “film tax credit” insert “or first-year tax credit
under Schedule A1 to the Capital Allowances Act”.
      (5)
In subsection (8BA), after “film tax credit” (in both places) insert “or first-
year tax credit under Schedule A1 to the Capital Allowances Act”.
FA 1998
8     (1)
Schedule 18 to FA 1998 (company tax returns, assessments etc.) is amended
as follows.
      (2)
In paragraph 10(2)—
(a)
after “capital allowances” insert “, first-year tax credits”, and
(b)
after “79” insert “, 83ZA”.
      (3)
In paragraph 52, after sub-paragraph (2) insert—
   “(2A)
The provisions of paragraphs 41 and 45 to 48 relating to discovery
assessments apply to an amount paid to a company by way of
first-year tax credit under Schedule A1 to the Capital Allowances
Act as if it were unpaid tax, but only to the extent that the
company was not, or is no longer, entitled to it.”