Capital Allowances Act 2001 Schedule A1 Part 1

Entitlement to First-Year Tax Credits

Schedule A1 Part 1 sets out the conditions under which companies can claim first-year tax credits, which allow loss-making companies to surrender unused first-year allowances in exchange for a payable tax credit.

• First-year tax credits enable companies that cannot use first-year allowances (because they have no taxable profits) to convert those allowances into a cash payment from HMRC.
• The entitlement applies to companies that have incurred qualifying expenditure on plant or machinery that attracts first-year allowances, but who are unable to fully utilise those allowances against their tax liability.
• The provisions were amended by Finance Act 2019, section 33(1)(c), which updated the rules governing eligibility and the operation of first-year tax credits.
• The tax credit mechanism effectively makes first-year allowances valuable even to companies that are currently in a loss-making position, supporting investment in qualifying assets.

---