CREC071100 - Expenditure credit redemption: the pre-Step 1 restriction

S1179CC CTA 2009听

A company may receive amounts of credit surrendered by a group member. In accounting periods after the first, a company may also have an amount of credit that was withheld at Step 2 in previous听periods and brought forward into the current one. These amounts are used before Step 1 to discharge the company鈥檚 Corporation Tax (CT) liability in the current period. This is known as the pre-Step 1 restriction.听

When a CT liability is discharged, the CT liability itself is not reduced. Rather, the amount the company has to听pay for the liability is reduced.听

The CT liability must be discharged in a particular order:听

  1. First, use amounts of credit brought forward from previous听accounting periods.听

  2. Second, use amounts of credit surrendered by a group member that were surrendered by that group member after being withheld at Step 2 of its own redemption calculation.听

  3. Third, use amounts of credit surrendered by a group member at Step 4 of its own redemption calculation.听

If the company has low or no CT liability, there may be some amounts left over after applying the pre-Step 1 restriction.听

Any amount brought forward from a previous听period and not used up can be surrendered to a group member or carried forward again into the next accounting period (CREC071400).听

Any amount received from a group member and not used up is treated as if it were听never surrendered. The surrendering company should adjust its calculations as necessary to reflect this.听

Example 1:听

Production company A has 拢80,000 of credit withheld at Step 2 in an earlier accounting period and brought forward into the current accounting period. It has a CT liability of 拢60,000 in the current accounting period.听

At the pre-Step 1 restriction, the CT liability is discharged in full and reduced to nil.听

Of the remaining 拢20,000 of credit brought forward, Production Company A decides to surrender 拢5,000 of it to a group member. The other 拢15,000 is carried forward again into the next accounting period.听

Example 2:听

Production Company B has 拢50,000 of credit withheld at Step 2 in the previous听accounting period and brought forward into the current accounting period. It has also received 拢100,000 credit surrendered by another company in the same group, Company C. The whole of the 拢100,000 was surrendered at Step 4 by Company C.听

Production Company B has a CT liability of 拢75,000 in the current accounting period.听

At the pre-Step 1 restriction, the 拢50,000 of credit brought forward is used up first to discharge 拢50,000 of the CT liability.听

As the whole amount received from Company C was surrendered at Step 4, there is no need to apply any part of it before the rest. The remaining 拢25,000 CT liability is reduced to nil听by the amount received from Company C.听

The remaining 拢75,000 of the amount received from Company C is returned to Company C as if it had not been surrendered.听

听