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HMRC internal manual

Capital Allowances Manual

PMA: FYA: First-year tax credits: clawback of tax credits, outline, definition

CAA01/Sch.A1 para 24 to 27


Without a special rule to prevent it, a company could claim a first-year tax credit then immediately sell the qualifying plant and machinery, having received a payment. To prevent any abuse of the regime there is a claw-back mechanism. Where a company that received a first-year tax credit disposes of an item of plant and machinery that was tax-relieved within the clawback period, then HMRC may make an assessment (CA23189) to recover some or all of the tax credit payment made.

If a company sells P&M and becomes aware that first-year tax credits should be clawed back as a result, then it is required to make the necessary amendments to returns that it has made. The company must notify HMRC of any amendments that are needed to the return(s) within 3 months of becoming aware that the amendments are due.


The clawback period for an item of P&M begins when the expenditure on that item was incurred and ends 4 years after the end of the chargeable period for which the tax credit was paid.

Plant and machinery is tax-relieved if the company claimed an FYA in respect of any of the expenditure on that item in the chargeable period for which the first-year tax credit was paid. Retained tax- relieved P&M is the tax-relieved P&M that the company still owns after the disposal.

A company disposes of tax-relieved P&M when there is one of the events in CAA01/s61 or when there is a change in ownership of the asset in circumstances such that one of the continuity of business provisions (CA23192) applies.

The disposal value to be used in calculating any clawback depends on the disposal event and is as given in CAA2001/s61. However, where the company disposes of the item to a connected person for less than its market value, or if one of the continuity of business provisions applies, the disposal value is the market value.