PAYE10075 - Coding: coding allowances and reliefs: venture capital trust
The Venture Capital Trust (VCT) scheme took effect from 6 April 1995. Guidance in the Venture Capital Schemes (VCM) Manual at VCM64020 onwards describes the scheme and tells you how to deal with claims to Income Tax relief on subscriptions for VCT shares.
Rate of relief
Relief is given in terms of tax for the year of assessment in which the shares are issued by the VCT. VCM64030 gives instructions on how relief is calculated and the limit of the relief.
Interaction with other reliefs
VCM64030 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 various coding allowances and reliefs.
Coding descriptor to use
There are no plans to introduce a coding descriptor for VCT relief nor a coding deduction to claw back excess relief. Instead, the coding allowance should be given in such a figure as will give the correct amount of relief (see also VCM64070). Use the description Concessional Relief. Further information can be found at PAYE130025.
Issue of P2
The Concessional relief note printed on the P2 will say ‘We have previously agreed that you are entitled to this tax relief. If you think our figure is wrong, or your circumstances have changed, please tell us’. You can include the special note EXPLANATION to let the customer know that you will be writing to them with details of the amount of concessional relief.
How to calculate coding allowance for VCT
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 basic rate, higher rate, or the additional rate clearly exceeds the amount of relief due, multiply the relief due in terms of tax by 100, divided by the individual's highest rate to arrive at the coding allowance.
For example, for 2008-2009, individual has made a £1000 subscription for VCT shares. Tax relief due is £1000 x 30 per cent = £300.00.
If the individual is liable at basic rate, the coding is £300 x 100/20 = 1500. The tax code will give relief of 1500 x 20 per cent = £300.
If the individual is liable to tax at higher rate. The coding adjustment is £300 x 100/40 = 750. The tax code will give relief 750 x 40 per cent = £300.
If the individual is liable to tax at the additional rate, the coding adjustment is £300 x 100/50 = 600. The tax code will give relief 600 x 50 per cent = £300.
Where the estimated liability straddles the rates, use the best estimate you can.
It is expected that claimants will be within SA so any inaccuracy in the relief given can be corrected when the return is submitted.
More information about how to calculate the coding amount is in the Venture Capital Schemes Manual at VCM64070.
