PAYE10045 - Coding: coding allowances and reliefs: enterprise investment scheme
The Enterprise Investment Scheme replaced the Business Expansion Scheme for shares issued after 31 December 1993.
Guidance in the Venture Capital Schemes (VCM) Manual at VCM25000 onwards tells you how to examine claims, the limit on relief and how to calculate the relief.
Rate of relief
For years up to 5 April 2011 relief is given at 20 per cent of the cost of the shares and is given in terms of tax. From 6 April 2011 this relief has been increased to 30 per cent. The first 20 per cent will continue to be given as a relief in the customers tax coding and the further 10 per cent will be claimed through the customers Self Assessment tax return.
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 description Enterprise Investment Scheme - further information can be found at PAYE130025. 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 individual has an explanation.
Initial action
Where you identify a valid new or existing EIS claim and
- The customer does not have a live / dormant Self Assessment (SA) record
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- Set up an SA record in accordance with SAM100000 onwards
- Ensure the SA start date is set in accordance with PAYE93032
- The customer does have a live / dormant SA record
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- Re-open the dormant SA record in accordance with SAM101093 and follow the bullets above
- Make an SA note to state the reason why the record has been reopened
In all cases, write to the customer explaining the maximum relief we can give in his / her tax coding is 20 per cent and the additional 10 per cent relief can be claimed through their Self Assessment tax return. Additionally, where appropriate, a claim to reduce payments on account can be made in advance of the tax return being received.
How to calculate coding allowance for Enterprise Investment Relief
Calculate the relief due using the guidance in the Venture Capital Schemes Manual (VCM) at VCM25000 onwards. Enter the calculated amount in IABD (PAYE130025), for example for an individual who has subscribed to qualifying shares £5000
- Enter £5000; in all cases, regardless of the rate at which an individual is liable to pay tax, the system will calculate an EIS relief amount for the current year as £5000 multiplied by 20 divided by 100 = £1000
The system will then calculate the coding allowance based on the individual’s highest rate of liability at the primary coded source
- For an individual liable at basic rate the amount will be £1000 multiplied by 100 divided by basic rate = £5000 coding allowance
- For an individual liable at the first higher rate the amount will be £1000 multiplied by 100 divided by the first higher rate = £2500 coding allowance
- For an individual liable at the second higher rate the amount will be £1000 multiplied by 100 divided by the additional rate = £2000 coding allowance
It is expected that most claimants liable at the higher rates will be within SA, so any inaccuracy in the relief given can be corrected when the return is submitted.
