PAYE10045 - coding: coding allowances and reliefs: enterprise investment scheme (EIS)

The Enterprise Investment Scheme (EIS) replaced the Business Expansion Scheme (BES) for shares issued after 31 December 1993.

Guidance in the Venture Capital Schemes (VCM) Manual at VCM25000 onwards tells you how to examine claims and how to calculate the relief.

Rate of relief

Relief is due at 20% and is given in terms of tax.

Interaction with other reliefs

VCM25400 sets out the order in which relief should be given. You will need to take this into account when deciding in what order to calculate coding allowances and deductions.

Coding descriptor to use

Use the coding descriptor EIS. There are no plans to introduce a special coding deduction to claw back any excess relief. Instead, the coding allowance should be in such a figure as will give the correct amount of relief. Make sure the taxpayer has an explanation.

How to calculate coding allowance for EIS

Calculate the relief due in terms of tax and convert this to a coding allowance. The factor you use to do this will depend on the estimated highest rate at the coded source.

Where the estimated liability at the starting, basic or higher rates clearly exceeds the amount of relief due, divide the relief due in terms of tax by the taxpayer's highest rate to arrive at the coding allowance.

Where the estimated liability straddles the rates, use the best estimate you can.

Bear in mind that the computer will automatically recalculate any HPAR using the net coding allowances after EIS relief. This could give problems in a small number of cases and before finalising the revised code, you may need to adjust your original amount for EIS relief to a balancing figure to collect the tax you want.

It is expected that most claimants will be within SA so any inaccuracy in the relief given can be corrected when the return is submitted.