SolvedCREC073300 | Expenditure credit redemption: example 3 - loss-making year 1, profit-making year 2
From HM Revenue & Customs · Creative Industries Expenditure Credit Manual
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.