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HMRC internal manual

Capital Allowances Manual

From
HM Revenue & Customs
Updated
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PMA: FYA: First-year tax credits: losses incurred in carrying on a qualifying activity

CAA01/Sch.A1 para 1, paras 4 - 9

In order to claim a first-year tax credit a company must have incurred a loss in carrying on a qualifying activity (CAA2001/s15). The legislation clarifies the meaning of “loss”, for qualifying activities other than trades, for tax credit purposes as follows (ICTA 1988/s503 says that for corporation tax purposes commercial furnished holiday lettings are treated as a trade):

Schedule A, other than a furnished holiday lettings, businesses:

For companies other than insurance companies a loss is one to which ICTA1988/s392A applies

For insurance companies a loss is one that may be treated as an expense to be brought into account at step 3 of ICTA1988/s76(7). Where the insurance company is treated as carrying on more than one Schedule A or overseas property business (ICTA88/s432AA) the profits and losses are aggregated in accordance with ICTA88/s432AB(4)

Overseas property businesses:

For companies other than insurance companies a loss is one to which ICTA1988/s392B applies

For insurance companies a loss is one that may be treated as an expense to be brought into account at step 3 of ICTA1988/s76(7). Where the insurance company is treated as carrying on more than one Schedule A or overseas property business (ICTA88/s432AA) the profits and losses are aggregated in accordance with ICTA88/s432AB(4)

Life assurance businesses where the profits are charged to tax under the I minus E basis:

The loss is the excess of expenses (over income and gains) available to be carried forward under ICTA1988/s76 (12)

Managing the investments of a company with investment business:

The loss is the excess of the deductible expenses and charges over income

The legislation ensures that only losses from a business carried on a commercial basis may be surrendered for a first-year tax credit.