The Capital Allowances (First-year Tax Credits) Order 2013

HMRC have issued SI 464 of 2013, which applies to both income and corporation tax and is relevant for First Year Tax Credits relating to environmentally friendly Plant & Machinery.
This Order, which comes into force on 28 March 2013, extends to 31 March 2018 the period during which relevant first-year expenditure must be incurred in respect of which a first-year tax credit may be claimed.
Companies within the charge to corporation tax that make a loss in a period in which they
invest in certain designated energy-saving or environmentally beneficial plant or machinery are expected to be main beneficiary.

These first-year tax credits came into effect in 2008 for a period of five years and were due
to end on 31 March 2013. The measure extends the scheme for a further five years to
31 March 2018.

The policy objective is that Enhanced capital allowances (ECAs) can be claimed to increase the quantum of losses available to carry forward, but the cash-flow benefit of the ECA is lost if the enhanced losses cannot be utilised against profits for a number of years.

First-year tax credits were introduced to address this limitation to the effectiveness of ECAs.

Evidence suggests that initial take-up of the relief was low, but data on take-up is available
only for the first two years, when business awareness of the credits is also likely to have
been low. Consequently, allowing the availability of credits to lapse on the basis of limited
data would be premature. Extending the scheme for a further five-year period will allow

@capitalallowtax

Capital Allowances


evidence of take-up to accrue and for an informed decision on the scheme’s future to be
made at the end of that period.

First-year tax credits were introduced in Finance Act 2008 for an initial period of five years
ending on 31 March 2013. The Government announced its intention to extend this period at
Budget 2012. There has been no consultation and the measure will have effect for expenditure incurred on or after 1 April 2013.

Currently First-year tax credits (as defined in Schedule A1 Capital Allowances Act 2001 (CAA 2001))
were introduced in 2008 for a period of five years, ending on 31 March 2013. They are
designed to further encourage investment in energy-efficient and environmentally beneficial
plant or machinery (as defined in sections 45A and 45H CAA 2001) by allowing companies
within the charge to corporation tax to surrender tax losses attributable to these ECAs, for a
cash payment from Government (a first-year tax credit).

Secondary legislation will be introduced to extend the availability of first-year tax credits for a further period of five years, to 31 March 2018. And there is expected to be a negligible impact to the exchequer.

Exact Business will review this and any further announcements in full at www.exactbusiness.co.uk

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