VCM64070 - VCT scheme: reliefs: 'front-end' Income Tax relief: coding
There is no coding descriptor for VCT ‘front-end' Income Tax relief, nor a coding restriction to claw back excess relief. You must therefore:
- calculate the relief due in terms of tax and convert this to a coding allowance,
- recode using the coding descriptor CR (Concessional Relief), and
- issue the P2 manually with an explanation. Describe the relief as VCT relief.
Further instructions can be found in the PAYE on-line manual at pomcod01120 (coding allowances and reliefs/information/Venture Capital Trusts).
Example 1
Where the estimated liability at the lower, 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 calculate the
coding allowance.
Earnings £20,000 in year of assessment 2004-05, VCT
subscriptions £2,500, allowances PA.
|
1. Calculate expected liability for the year |
||||
|
Earnings |
£20,000 | |||
|
Less PA |
£4,745 | |||
|
Chargeable |
£15,255 | |||
|
£2,020 |
@ 10% = |
£202.00 | ||
|
£13,235 |
@ 22% = |
£2,911.70 | ||
|
Liability |
£3,113.70 | |||
|
Less VCT relief |
£2,500 |
@ 40% = |
£1,000.00 | |
|
Tax due |
£2,113.70 | |||
|
2. Convert VCT relief to a coding allowance |
||||
|
£1,000 x |
100 / 22 = |
£4,545 | ||
|
3. Prove coding allowance |
||||
|
Earnings |
£20,000 | |||
|
Less PA |
£4,745 | |||
|
Less VCT |
£4,545 | |||
|
Chargeable |
£10,710 | |||
|
£2,020 |
@ 10% = |
£202.00 | ||
|
£8,690 |
@ 22% = |
£1,911.80 | ||
|
Tax payable |
£2,113.80 | |||
Example 2
Where liability straddles the rates you will need to work out
the expected liability for the year and put the best estimate you
can in the coding.
Earnings £35,000 in 2004-05, VCT subscriptions
£52,500, allowances PA.
| 1. Calculate expected liability for the year | ||||
| Earnings | £38,000 | |||
| Less PA | £4,745 | |||
| Chargeable | £33,255 | |||
| £2,020 | @ 10% = |
£202.00 | ||
| £29,380 | @ 22% = |
£6,463.60 | ||
| £1,855 | @ 40% = |
£742.00 | ||
| Liability |
£7,407.60 | |||
| Less VCT relief | £2,500 | @ 40% = |
£1,000.00 | |
| Tax due |
£6,407.60 | |||
|
2. Calculate the coding allowance |
||||
| Tax due as above |
£6,407.60 | |||
| Chargeable @ 10% | £2,020 = | £202.00 | ||
| To produce ‘right’ liability | £28,207* = | £6,205.54 |
£6,407.54 | |
| Earnings |
£38,000 | |||
| Less total chargeable £2,020 + £28,207 |
£30,227 | |||
| Net coding allowances |
£7,773 | |||
|
Less PA |
£4,745 | |||
| VCT relief coding (CR) |
£3,028 | |||
| * £6,407.60 - £202.00 = £6,205.60 x 100 / 22 = £28,207 (subject to discrepancy due to rounding) | ||||
