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.