MTT25400 - Calculating the effective tax rate: Covered tax balance: Non-marketable transferable tax credits
Source: gov.uk (2025-08-05)


Some tax credits may be transferable to other persons, unlike an ordinary tax credit which is only creditable against tax for the recipient of the credit. A person disposing of such a tax credit will typically receive payment for the tax credit. Such tax credits may therefore have the economic character of government grants or refundable tax credits.

The treatment of a transferable tax credit depends on whether or not it is marketable.

For marketable transferable tax credits, adjustments are made in the adjusted profits.

A non-marketable transferable tax credit will be reflected in the covered tax balance (as a reduction to that balance) when it is used. An adjustment may also be required to the covered tax balance when the credit is transferred.

Where a non-marketable credit expires without being used, the adjustment required will be to ensure a loss is reflected in the adjusted profits.

The treatment of non-marketable transferable tax credits is set out in sections 176A to 176C of Finance (No.2) Act 2023.

See MTT21420 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21420) for guidance on the meaning of ‘marketable’ and the treatment of marketable credits.

Meaning of non-marketable tax credit, originator, and purchaser

A tax credit is ‘non-marketable’ if:
- it may be transferred to another person or entity, or has already been acquired from the original recipient of the credit, and
- it is neither a marketable transferable tax credit (see MTT21420 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21420)) nor a qualifying refundable tax credit (see MTT21410 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21410)).
The person or entity who is the original recipient of the credit is the ‘originator’. A person or entity who has acquired the credit is a ‘purchaser’.

Treatment for the originator

Where the originator uses a non-marketable transferable tax credit against a covered tax, that use is to be reflected in the covered tax balance, as the credit is used.

Where consideration is received on the disposal of such a credit, that amount is to be reflected as a credit in the covered tax balance, in the period in which the consideration was received.

Treatment for a purchaser – credit used

Where a purchaser uses a non-marketable transferable tax credit against a covered tax, an amount is to be reflected in the covered tax balance, in the period in which it was used.

The amount to be reflected is given by multiplying:
- the amount used, divided by the full value of the credit (or acquired portion of the credit),
by
- the amount given by subtracting the purchase price of the credit from the full value of the credit (or acquired portion of the credit).
Treatment for a purchaser – credit transferred onwards

Where a purchaser of a non-marketable transferable tax credit transfers the credit to another party, an amount is to be reflected in either the adjusted profits or the covered tax balance for the accounting period in which the transfer occurred. That amount is the amount given by subtracting:
- the sum of:
- the purchase price of the credit, and
- any amounts previously reflected in the covered tax balance of any period as a result of the purchaser using the tax credit, from
- the sum of:
- the amount of the credit that has been used, and
- the consideration for the transfer.
Where this amount is a positive figure, it will be reflected as a credit in the covered tax balance. This will reduce the covered tax balance.

Where the amount is a negative figure, it will be reflected as a loss in the adjusted profits.

Treatment for a purchaser – credit expires before use

Where an acquired non-marketable transferable tax credit expires before being fully used by a purchaser, an amount is reflected as a loss in the adjusted profits.

That amount is the amount given by subtracting:
- the amount of credit that was used by the purchaser, from
- the sum of:
- the purchase price of the credit, and
- any amount previously recognised in the covered tax balance of any period as a result of the purchaser using the tax credit.