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LA 3: When total tax credit less than or equal to income tax liability
or “What happens when your tax credits don't cover all the tax you owe”
You could also call this:

“How to use tax credits when they exceed your income tax bill”

If you have more tax credits than you owe in income tax for a tax year, you need to use your credits in a specific order to pay off your tax bill. Here’s how you should use your credits:

First, you use your non-refundable tax credits. Then, you use any tax credits for supplementary dividends. After that, you use tax credits for imputation credits. Next, you use research and development tax credits, first from one type and then from another. Finally, you use any refundable tax credits you have.

If you still have tax credits left after paying off all your income tax, you need to follow the rules in section LA 5 to deal with the remaining credits.

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Next up: LA 5: Treatment of remaining credits

or “How unused tax credits are handled and refunded”
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Part L Tax credits and other credits
General rules for tax credits

LA 4When total tax credit more than income tax liability

  1. If a person’s total tax credit for a tax year is greater than their income tax liability for the tax year, the person must use their total tax credit, including the credits listed in paragraphs (a) to (d), to satisfy their income tax liability by using—

  2. first, a non-refundable tax credit:
    1. second, a tax credit for a supplementary dividend:
      1. third, a tax credit for an imputation credit:
        1. fourth, a research and development tax credit under section LY 1(3)(b):
          1. fifth, a research and development tax credit under section LY 1(3)(a):
            1. sixth, a refundable tax credit.

              1. A person who has satisfied their income tax liability under subsection (1) must deal with their remaining tax credits for the tax year under section LA 5.

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              Notes
              • Section LA 4(1)(cb): inserted, on , by section 8(1) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
              • Section LA 4(1)(cc): inserted, on , by section 8(1) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
              • Section LA 4(1)(d): amended, on , by section 8(2) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
              • Section LA 4 list of defined terms research and development tax credit: inserted, on , by section 8(3) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).