Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Community investment tax relief manual

From
HM Revenue & Customs
Updated
, see all updates

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.

  1. 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
  1. 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.