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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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PMA: FYA: First-year tax credits: Outline, commencement, amount that may be claimed

CAA01/s262A, CAA01/Sch.A1 para1, para 2, para 23


The benefit of 100% FYAs (ECAs) to businesses can be reduced when the business is loss making, particularly where the tax losses cannot be relieved for a number of years because they have insufficient profits to absorb the losses. The introduction of first-year tax credits (also referred to as payable ECAs) increases the benefit of ECAs, made in respect of certain environmentally friendly plant and machinery, to loss making companies.


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 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. The 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.


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

The surrenderable loss is the lesser of:

  1. the loss sustained in carrying on a qualifying activity in the chargeable period that is unrelieved (CA23183) and
  2. the amount of FYA given in the period in respect of relevant first-year expenditure on energy-saving (CA23140) and environmentally beneficial (CA23135) plant and machinery.


A first-year tax credit may be claimed in respect of expenditure incurred on or after 1 April 2008.