MTT21440 - Calculating the effective tax rate: Adjusted profits: Non-marketable transferable tax credits
A transferable tax credit that is neither a marketable transferable tax credit nor a qualifying refundable tax credit is a non-marketable transferable tax credit.
When non-marketable transferable tax credits are used, and when they are first transferred, this is reflected in the covered tax balance (see MTT25400).
Where a purchaser of a non-marketable transferable tax credit transfers the credit onwards, or the credit expires before use, an adjustment is required when determining the adjusted profits.
These adjustments are set out in section 176C of Finance (No.2) Act 2023.
Purchaser transfers credit onwards
Where a purchaser of a non-marketable transferable tax credit transfers the credit to another party, an amount is to be reflected in either the adjusted profits or the covered tax balance for the accounting period in which the transfer occurred. That amount is the amount given by subtracting:
- the sum of:
- the purchase price of the credit, and
- any amounts previously reflected in the covered tax balance of any period as a result of the purchaser using the tax credit, from
- the sum of:
- the amount of the credit that has been used, and
- the consideration for the transfer.
Where this amount is a positive figure, it will be reflected as a credit in the covered tax balance. This will reduce the covered tax balance.
Where the amount is a negative figure, it will be reflected as a loss in the adjusted profits.
Credit expires before use by a purchaser
Where an acquired non-marketable transferable tax credit expires before being fully used by a purchaser, an amount must be reflected as a loss in the adjusted profits.
That amount is the amount given by subtracting:
- the amount of credit that was used by the purchaser, from
- the sum of:
- the purchase price of the credit, and
- any amount previously reflected in the covered tax balance of any period as a result of the purchaser using the tax credit.