MTT21430 - Calculating the effective tax rate: Adjusted profits: Marketable transferable tax credits – Adjustments required

In calculating the underlying profits of a member, the treatment of marketable transferable tax credits will differ depending on whether the member is the originator (the person to whom the credit was originally granted) or the purchaser.

This is set out in sections 148B and 148C of Finance (No.2) Act 2023.

Adjustments made by the originator

For the originator, the underlying profits are to be adjusted to reflect the value of a marketable transferable tax credit, as follows:

Where the credit is not transferred within 15 months of the end of the period in which it was granted, the full value of the credit is to be recognised as income in the period the credit was received.

Where:

  • the credit is transferred after it has been recognised as income for MTT purposes, and
  • it is transferred for consideration which is less than its value,

the difference between the value of the credit and the consideration received for its transfer is to be recognised as a loss in the accounting period in which it is transferred.

Where the credit is transferred within 15 months of the end of the period in which it was granted, the consideration for the transfer (rather than the value of the credit) is to be recognised as income in the period the credit was received.

Where the credit has neither been transferred nor been fully used before its expiry, the value of the unused portion of the credit is to be reflected as a loss in the accounting period in which the credit expired.

Adjustments made by a purchaser

For a purchaser, the underlying profits are to be adjusted to reflect the value of a marketable transferable tax credit, as follows.

Where the acquired credit is used in an accounting period, an amount of income is to be recognised in that period. This is the amount given by multiplying:

  • the amount used, divided by the full value of the credit (or acquired portion of the credit),

by

  • the amount given by subtracting:
    • the purchase price of the credit from
    • the full value of the credit (or acquired portion of the credit).

Where the credit is transferred onwards, an amount is to be recognised as a gain (or loss, if negative) in the period of transfer. That amount is given by subtracting:

  • the sum of:
    • the price of the credit paid by the purchaser, and
    • any amounts previously recognised as income where the credit was used, from
  • the sum of:
    • the amount of credit that has been used, and
    • the consideration received for the onward transfer.

Where the credit is not transferred onwards and expires before being fully used, a loss is to be recognised in the period of expiry. The value of that loss is given by subtracting:

  • the amount of the credit that was used (if any), from
  • the sum of:
    • the price of the credit paid by the purchaser, and
    • any amounts previously recognised as income where the credit was used.