CT600 Box 565: First-Year Tax Credit

CT600 Box 565 records the First-Year Tax Credit — a capital allowances-related payable credit for loss-making companies. This credit was repealed for expenditure incurred on or after 1 April 2020, which means the box is now only relevant for companies amending older returns or with qualifying capital expenditure predating that date.

If you are filing a company tax return for a current accounting period, Box 565 will almost certainly be nil. This guide explains what the credit was, why it was abolished, and the rare circumstances where it might still apply.

What Were First-Year Allowances?

To understand Box 565, you first need to understand first-year allowances (FYAs). Under the UK capital allowances regime, companies can deduct the cost of qualifying plant and machinery against their taxable profits. In most cases, deductions are spread over several years through writing down allowances — 18% per year for the main pool, 6% for the special rate pool.

However, for certain categories of qualifying capital expenditure, HMRC offered a 100% first-year allowance: the entire cost of the asset could be deducted in the accounting period it was purchased, rather than spread over years. This applied to assets such as:

• Energy-efficient equipment certified under the Energy Technology List
• Water-efficient equipment on the Water Technology List
• Low-emission cars meeting the CO₂ threshold at the time

The policy goal was straightforward: the government wanted to incentivise companies to invest in environmentally friendly assets, and allowing an immediate 100% deduction made these assets significantly more attractive from a tax perspective.

The Problem for Loss-Making Companies

Enhanced first-year allowances worked well for profitable companies. A company paying 19% or 25% corporation tax could immediately reduce its liability by deducting the full cost of a qualifying asset. But loss-making companies had no current corporation tax liability against which to apply the allowance.

They could carry the unused allowances forward and deduct them against future profits — but this could take years, reducing the present value of the benefit substantially. The government's intended incentive was blunted for exactly those early-stage or struggling companies that might most need it.

The First-Year Tax Credit addressed this. A loss-making company could surrender the portion of its loss attributable to enhanced first-year allowances and receive a cash payment from HMRC in return. The credit was paid at a specified percentage of the surrenderable loss, converting an uncertain future deduction into immediate cash.

Why the Credit Was Repealed

HMRC abolished the First-Year Tax Credit for expenditure incurred on or after 1 April 2020. The underlying reasons were:

1. The Annual Investment Allowance (AIA) had expanded significantly — by 2020, it allowed a 100% deduction on up to £1 million of qualifying plant and machinery per year for virtually all companies. This removed the need for specific enhanced FYAs in most situations.

1. The categories of expenditure that attracted specific enhanced FYAs had narrowed over time, reducing the scope of the credit.

1. The administrative complexity of the surrender mechanism was judged not to be worth maintaining for a relatively small number of claimants.

The relevant HMRC Capital Allowances Manual section (CA23175) is now archived, confirming the credit is no longer in active use.

When Might Box 565 Still Apply?

Despite the repeal, Box 565 may still be relevant in these limited scenarios:

1. Amending a prior-year return If you are correcting a company tax return for an accounting period ending before 1 April 2020, Box 565 may need to be completed. HMRC generally allows amendments within two years of the end of the accounting period. See our guide on how to amend a CT600 return for the amendment process.

2. Accounting periods straddling 1 April 2020 If your company had a long accounting period that crossed the 1 April 2020 boundary, and qualifying expenditure was incurred before that date, the credit may apply to the pre-April 2020 portion. Careful apportionment is required.

3. Late claims within the amendment window If you believe you had a valid credit on an older return and are still within the two-year amendment window, a claim may be possible. Given the complexity involved, we strongly recommend seeking professional advice before attempting this.

For all other cases, leave Box 565 blank or enter zero.

Where Box 565 Sits on the CT600

Box 565 appears in the Tax Reconciliation section — the part of the CT600 that moves from the calculated corporation tax charge through various credits and reliefs to arrive at the final amount payable or repayable.

Other credits in this section include:

• Box 530 — R&D Credit (RDEC) — for companies claiming R&D Expenditure Credit
• Box 540 — Creative industry tax credits
• Box 550 — Land remediation credit

For a full overview of how the CT600 is structured and where each box sits, see our guide to CT600 boxes explained.

Capital Allowances for Current Filings

If you are filing for a current accounting period and want to maximise your capital allowances deductions, the following mechanisms remain fully active:

Annual Investment Allowance (AIA) The AIA provides a 100% deduction for qualifying plant and machinery up to £1 million per year. This is claimed via the deductions section of the CT600. For most small and medium-sized companies, the AIA covers all eligible capital expenditure in a year, making it the primary capital allowances tool.

First-Year Allowances — still available in limited cases A handful of FYA categories survived the broader repeal and remain available today, primarily for:

• Zero-emission cars (100% FYA available)
• Zero-emission goods vehicles (100% FYA available)
• Electric vehicle charge points (100% FYA available)

Note that while these FYA deductions remain, the associated payable credit (Box 565) is not available for expenditure on or after 1 April 2020.

Writing Down Allowances (WDAs) For assets not covered by AIA or FYA, WDAs provide 18% (main pool) or 6% (special rate pool) annual deductions, spread over multiple years.

See our complete guide to capital allowances on the CT600 for how to claim these deductions correctly.

Loss Relief Alternatives

If your company is making a trading loss and you are looking to extract value from it, several options remain fully active:

• Carry forward losses against future profits of the same trade
• Carry back losses against the prior year's profits (subject to caps — see corporation tax losses)
• Group relief — surrender losses to other group companies

These mechanisms are far more commonly used than the now-repealed First-Year Tax Credit and should be your first consideration if your company is loss-making.

Summary

CT600 Box 565 records the First-Year Tax Credit — a payable capital allowances credit that allowed loss-making companies to convert unused enhanced first-year allowances into cash. The credit was repealed for expenditure incurred on or after 1 April 2020 and is now only relevant when amending older returns or claiming late on pre-April 2020 expenditure. For current filing periods, leave Box 565 blank and focus on the Annual Investment Allowance and other active capital allowances mechanisms. If you are unsure whether a historic claim applies to your situation, consult HMRC's guidance or a qualified accountant.