CREC073300 - Expenditure credit redemption: example 3 - loss-making year 1, profit-making year 2
CT = Corporation Tax
AP = accounting period
Year 1
Company 3, Year 1 |
Values |
Loss |
(£150,000) |
CT liability @ 25% |
nil |
Credit for this AP |
£200,000 |
Credit brought forward |
nil |
Credit received from group member(s) |
nil |
CT liability of other AP(s) |
nil |
Other liabilities |
nil |
PRE-STEP 1 RESTRICTION
The amount of credit brought forward and the amount of credit received from group member(s) are used, in that order, to discharge the CT liability for this AP.
Company 3 has no brought forward credit or amounts surrendered by a group member, so there is no need to apply the restriction.
STEP 1
The credit amount for this AP is used to discharge the CT liability for this AP.
- |
Values |
Credit for this AP |
£200,000 |
CT liability |
nil |
Credit remaining after discharge |
£200,000 |
STEP 2
If the amount of credit remaining after Step 1 exceeds the initial credit amount net of a notional tax charge, it is to be reduced to the initial credit amount net of a notional tax charge.
The notional tax charge is at the main rate of CT, 25%.
- |
Values |
Amount of credit remaining after Step 1 |
£200,000 |
Net credit (£200,000 less 25%) |
£150,000 |
Carry forward lesser amount to Step 3 |
£150,000 |
Credit withheld at Step 2 |
£50,000 |
The withheld amount is not available as a payable credit now or in future but can be surrendered to a group member or used to discharge CT liability in later years.
STEP 3
The amount of credit remaining after Step 2 is used to discharge any liability of the company to pay CT for any other AP.
- |
Values |
Credit remaining after Step 2 |
£150,000 |
CT liability of other AP(s) |
nil |
Credit remaining after discharge |
£150,000 |
STEP 4
If the company is a member of a group, it may surrender some or all of the amount remaining after Step 3 to any other member of the same group.
- |
Values |
Credit remaining after Step 3 |
£150,000 |
Amount surrendered to group member |
nil |
Amount remaining after surrender |
£150,000 |
STEP 5
The amount of credit remaining after Step 4 is used to discharge any other liability of the company to pay a sum to HMRC, eg. VAT or an amount due under a contract settlement.
- |
Values |
Credit remaining after Step 4 |
£150,000 |
Other liabilities |
nil |
Credit remaining after discharge |
£150,000 |
STEP 6
The amount remaining after Step 5 is payable to the company by HMRC, provided that:
the company is not in administration or liquidation,
HMRC has not opened an enquiry into the company’s tax return,
the company does not have unpaid amounts of PAYE, Class 1 NICs or withholding tax for visiting performers.
Company 3 meets the conditions and receives £150,000 payable credit.
Summary |
Values |
Withheld at Step 2 |
£50,000 |
Payable at Step 6 |
£150,000 |
Total credit for this AP |
£200,000 |
SURRENDER TO GROUP MEMBER
If the company is a member of a group, it may surrender some or all of the amount withheld at Step 2, plus any credit brought forward and not used at the pre-Step 1 restriction, to any other member of the same group.
Although Company 3 has £50,000 credit withheld at Step 2, it chooses not to surrender any to group members.
AMOUNTS CARRIED FORWARD
Any amount withheld at Step 2 and/or any unused credit brought forward which is not surrendered to a group member is carried forward to the next AP.
Company 3 has no amount of unused credit brought forward, but it does have £50,000 withheld at Step 2 and not surrendered to a group member.
Company 3 carries forward £50,000 credit to the next AP, which is brought in at the pre-Step 1 restriction for that AP.
Year 2
Company 3, Year 2 |
Values |
Profit |
£600,000 |
CT liability @ 25% |
£150,000 |
Credit for this AP |
£250,000 |
Credit brought forward |
£50,000 |
Credit received from group member(s) |
nil |
CT liability of other AP(s) |
nil |
Other liabilities |
nil |
PRE-STEP 1 RESTRICTION
The amount of credit brought forward and the amount of credit received from group member(s) are used, in that order, to discharge the CT liability for this AP.
- |
Values |
Credit brought forward |
£50,000 |
CT liability |
£150,000 |
CT liability after discharge |
£100,000 |
Remaining credit brought forward |
nil |
STEP 1
The credit amount for this AP is used to discharge the remaining CT liability for this AP.
- |
Values |
Credit for this AP |
£250,000 |
CT liability |
£100,000 |
CT liability after discharge |
nil |
Credit remaining after discharge |
£150,000 |
STEP 2
If the amount of credit remaining after Step 1 exceeds the initial credit amount net of a notional tax charge, it is to be reduced to the initial credit amount net of a notional tax charge.
The notional tax charge is at the main rate of CT, 25%.
- |
Values |
Amount of credit remaining after Step 1 |
£150,000 |
Net credit (£250,000 less 25%) |
£187,500 |
Carry forward lesser amount to Step 3 |
£150,000 |
Credit withheld at Step 2 |
nil |
STEP 3
The amount of credit remaining after Step 2 is used to discharge any liability of the company to pay CT for any other AP.
- |
Values |
Credit remaining after Step 2 |
£150,000 |
CT liability of other AP(s) |
nil |
Credit remaining after discharge |
£150,000 |
STEP 4
If the company is a member of a group, it may surrender some or all of the amount remaining after Step 3 to any other member of the same group.
- |
Values |
Credit remaining after Step 3 |
£150,000 |
Amount surrendered to group member |
nil |
Amount remaining after surrender |
£150,000 |
STEP 5
The amount of credit remaining after Step 4 is used to discharge any other liability of the company to pay a sum to HMRC, e.g. VAT or an amount due under a contract settlement.
- |
Values |
Credit remaining after Step 4 |
£150,000 |
Other liabilities |
nil |
Credit remaining after discharge |
£150,000 |
STEP 6
The amount remaining after Step 5 is payable to the company by HMRC, provided that:
the company is not in administration or liquidation,
HMRC has not opened an enquiry into the company’s tax return,
the company does not have unpaid amounts of PAYE, Class 1 NICs or withholding tax for visiting performers.
Company 3 meets the conditions and receives £150,000 payable credit.
Summary |
Values |
Discharge at Step 1 |
£100,000 |
Payable at Step 6 |
£150,000 |
Total credit for this AP |
£250,000 |
SURRENDER TO GROUP MEMBER
If the company is a member of a group, it may surrender some or all of the amount withheld at Step 2, plus any credit brought forward and not used at the pre-Step 1 restriction, to any other member of the same group.
Company 3 has no amount of credit withheld at Step 2 or unused credit brought forward, so there is no need to consider a surrender.
AMOUNTS CARRIED FORWARD
Any amount withheld at Step 2 and/or any unused credit brought forward which is not surrendered to a group member is carried forward to the next AP.
Company 3 has no amount of credit withheld at Step 2 or unused credit brought forward, so there is no amount carried forward.