CITM6020 - Tax Relief: Individual Investors - PAYE coding and Payments on Account
Relief under the CITR scheme cannot be claimed until after the end of the tax year (ITA/s335). But individual investors who have received a tax relief certificate and who wish to obtain relief for an investment for the current year without waiting for the year to end can effectively do so by
- requesting a change to their PAYE code number, or
- by claiming a reduction their self-assessment (SA) payments on account.
PAYE coding adjustments: Investors to note
PAYE taxpayers can write to their tax office and ask to have relief included provisionally in their current year’s PAYE code number. Where provisional relief is given in the code, the individual must formally claim the relief after the end of the year.
PAYE coding adjustments: Tax offices to note
There are no plans to introduce a coding descriptor for CITR
relief nor a coding adjustment to claw back excess relief. Instead,
the relief due should be converted to a coding allowance which will
give the best estimate of the amount of relief due - see examples 1
and 2 below.
Tax officers should use the descriptor CR (Concessional
Relief) and either
- issue the P2 manually, describing the relief as Community Investment Relief, or
- use the freehand notes space or a separate letter for an explanation and let the system issue the P2. Note that in such a case the relief will automatically be described as Concessional Relief.
Where provisional relief is given in the code, the individual
must formally claim the relief after the end of the year. Tax
officers should ensure that where such provisional relief is given
to someone outside SA, the case is brought into SA for the year for
which relief is claimed.
Example 1
An individual subscribes £10,000 for shares a Community
Development Finance Institution (CDFI) in January 2003. The relief
due in terms of tax is £500 (5% of £10,000), and the
estimated liability at the investor’s highest rate is
£6,000 (£15,000 @ 40%).
The investor’s estimated liability at the highest rate
(£6,000) exceeds the relief due in terms of tax (£500).
The coding allowance (CR) will be £1,200 that is, the relief
due in terms of tax (£500) divided by the investor’s
highest rate (40%).
Example 2
An individual subscribes £100,000 for shares a Community
Development Finance Institution (CDFI) in January 2003. His
expected earnings for the year are £40,000. Personal
allowances due are £4,615.
- Work out the expected liability for the year.
| Earnings | 40,000 |
|
|
|
| Less PA | 4,615 |
|
|
|
|
| 45,385 |
|
|
|
|
| 1,920 | @ 10% | = | 192.00 |
|
| 27,980 | @ 22% | = | 6,155.60 |
|
| 5,485 | @ 40% | = | 2,194.00 |
|
|
|
|
| 8,541.60 |
|
| Less CITR |
| = | (5,000.00) |
|
| relief: |
|
|
|
|
| £100,000 |
|
|
|
|
| @ 5% = |
|
|
|
|
|
| Tax due |
| 3,541.60 |
- Calculate the coding allowance
|
|
| Tax due from above |
| £3,541.60 |
|
|
|
|
|
|
| Chargeable | @ 10% | 1,920 | = | 192.00 |
| Chargeable to produce ‘right’ liability | @ 22% | 15,225* | = | 3,349.50 |
|
|
|
|
|
|
|
|
|
| Total | £3,541.50 |
| Earnings |
| 40,000 |
|
|
| less total chargeable
Net coding allowances Less PA CITR relief coding (CR) |
| (17,145)
22,855 (4,615) 18,240 |
|
|
* 3,541.60 - 192.00 x 100/22 = 15,225 (subject to slight discrepancy due to rounding)
Payments on Account
Individuals already within SA and who have, or are due to make,
payments on account can make a claim for those payments to be
reduced to take account of relief that they believe will be due
(TMA70/s59A/(3)&(4).
If such a claim proves excessive when the SA return is
received, then interest will be charged from the relevant due
dates.
