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CAA01/Sch.A1 para 10 - 16

Only unrelieved losses may be surrendered for a first-year tax credit. The definition of unrelieved loss depends upon the qualifying activity:

Trade or furnished holiday lettings

other than a furnished lettings business (carried on by a company that is not an insurance company)

(carried on by a company other than an insurance company)

business carried on by an insurance company.

of a company with investment business.

Broadly, whatever the qualifying activity, the unrelieved loss is the loss incurred in the chargeable period, excluding any losses brought forward from an earlier period or carried back from a subsequent period. This is reduced both by any amount already utilised (carried back, surrendered either as group relief or for another tax credit for example) and also by any amount that could be surrendered as group relief or be used to offset the company鈥檚 other profits of the same accounting period.

Example 1

Desolation Row Plc is a trading company. It has a trading loss of 拢400,000 for its accounts year ended 30 May 2009, of which 拢300,000 is attributable to FYAs on energy saving plant. It does, however, have interest income of 拢100,000. It has trading losses brought forward from an earlier period of 拢150,000.It has one subsidiary company which has Schedule A profits of 拢50,000 for the year ending 30 May 2009 but there is no claim for group relief. Desolation Row pays 拢300,000 PAYE and NIC for that year.

Desolation Row鈥檚 unrelieved loss is 拢250,000 (being 拢400,000 less 拢100,000 less 拢50,000). The unrelieved loss is less than the FYA for the period, so the surrenderable loss is 拢250,000 and the company may claim a first-year tax credit of 拢47,500 (拢250,000 @ 19%).

Example 2

The details are as in example 1 except that Desolation Row Plc has two subsidiary companies: company A has Schedule A profits of 拢50,000 and company B has a trading loss of 拢100,000 for the year ending 30 May 2009. Company B surrenders 拢50,000 of its loss to company A as group relief. Desolation Row pays 拢300,000 PAYE and NIC for that year.

Desolation Row鈥檚 unrelieved loss is still 拢250,000 (拢400,000 less 拢100,000 less 拢50,000), as it could have surrendered losses to company A rather than company B surrendering its losses. Desolation Row is, then, entitled to claim a first-year tax credit of 拢47,500 as in example 1.