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HMRC internal manual

Capital Allowances Manual

PMA: FYA: First-year tax credits: relevant first-year expenditure, pre-trading expenditure, additional VAT liabilities & rebates

CAA01/Sch.A1 para 3

A company may surrender (for a tax credit) an amount of unrelieved loss (CA23183) not exceeding the amount of FYA given in respect of relevant first-year expenditure in the chargeable period. Expenditure is relevant first-year expenditure if

  • it is on energy-saving (CA23140) or environmentally beneficial (CA23135) plant and machinery,


  • if it is incurred in the period 1 April 2008 to 31 March 2018


Pre-trading expenditure

Pre-trading expenditure is normally treated as if it was incurred on the date that the trade begins (CAA01/s12). If a company incurs qualifying expenditure before 1 April 2008 for a trade that begins after that date it cannot surrender any loss attributable to it.


In January 2008 Dylan sets up a company called Fourth Time Around Ltd. In February 2008 the company incurs expenditure of £500,000 on energy saving plant and machinery for its trade that begins on 1 May 2008. The £500,000 is treated as incurred on 1 May 2008, the day that the trade begins, but it is not relevant first-year expenditure because it was actually incurred before 1 April 2008.

Additional VAT liabilities and rebates

While the VAT payable on an asset is usually determined by the first use of the asset, the VAT Capital Goods Scheme (CA29230) may adjust the amount of VAT due if the use of the asset changes during the period of ownership. This may result in an additional VAT liability or rebate. Although an additional VAT liability may qualify for an FYA, such expenditure is not relevant first-year expenditure and will not qualify for a first-year tax credit. Similarly, first-year tax credits are not recouped where there is an additional VAT rebate under the Capital Goods Scheme.