PMA: FYA: First-year tax credits: unrelieved losses
CAA01/Sch.A1 para 10 - 16
Only unrelieved losses may be surrendered for a first-year tax credit. The definition of unrelieved loss depends upon the qualifying activity:
Trade or furnished holiday lettings
Schedule A other than a furnished lettings business (carried on by a company that is not an insurance company)
Overseas property business (carried on by a company other than an insurance company)
Schedule A or overseas property business carried on by an insurance company.
Managing the investments of a company with investment business.
Broadly, whatever the qualifying activity, the unrelieved loss is the loss incurred in the chargeable period, excluding any losses brought forward from an earlier period or carried back from a subsequent period. This is reduced both by any amount already utilised (carried back, surrendered either as group relief or for another tax credit for example) and also by any amount that could be surrendered as group relief or be used to offset the company’s other profits of the same accounting period.
Desolation Row Plc is a trading company. It has a trading loss of £400,000 for its accounts year ended 30 May 2009, of which £300,000 is attributable to FYAs on energy saving plant. It does, however, have interest income of £100,000. It has trading losses brought forward from an earlier period of £150,000.It has one subsidiary company which has Schedule A profits of £50,000 for the year ending 30 May 2009 but there is no claim for group relief. Desolation Row pays £300,000 PAYE and NIC for that year.
Desolation Row’s unrelieved loss is £250,000 (being £400,000 less £100,000 less £50,000). The unrelieved loss is less than the FYA for the period, so the surrenderable loss is £250,000 and the company may claim a first-year tax credit of £47,500 (£250,000 @ 19%).
The details are as in example 1 except that Desolation Row Plc has two subsidiary companies: company A has Schedule A profits of £50,000 and company B has a trading loss of £100,000 for the year ending 30 May 2009. Company B surrenders £50,000 of its loss to company A as group relief. Desolation Row pays £300,000 PAYE and NIC for that year.
Desolation Row’s unrelieved loss is still £250,000 (£400,000 less £100,000 less £50,000), as it could have surrendered losses to company A rather than company B surrendering its losses. Desolation Row is, then, entitled to claim a first-year tax credit of £47,500 as in example 1.