First- year tax credits (FYTC) were originally launched in Finance Act 2008 for an initial five year period ending on 31 March 2013. They were introduced to encourage loss making companies to invest in energy-saving or environmentally beneficent technology.
In exchange for investing in such technology, loss making companies can claim FYTC in their company tax returns. A valid claim must include a list of the qualifying expenditure, such as energy saving lighting or heating or environmentally friendly water recycling, the amount of the expenditure and the date on which it was incurred.
The initial period was extended for another five years in 2013, taking the deadline up to 31 March 2018.
The Autumn Budget 2017 has seen the measure extended yet again, by a further five years, up until 31 March 2023. The credit rate is set at two-thirds the rate of corporation tax.
The FYTC scheme is focused purely on loss making companies, enabling them to surrender the losses attributable to the Enhanced Capital Allowances – the energy and environmentally friendly (water) expenditure – in exchange for a cash payment.
The Government is keen to curtail the consumption of energy by business and to reduce carbon emissions and sees this specific tax initiative as a way of helping meet the UK’s carbon reduction obligations. The extension of the relief will be welcome by those businesses investing in such technology.