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HMRC internal manual

Community investment tax relief manual

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HM Revenue & Customs
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Tax Relief: Corporate Investors - limit on State aid - calculation of aid received

Calculation of aid received

CTA2010/Part 7/Chapter 1/S220B

1) Equity investment

The amount of relief will be the tax relief that the company will receive for investing in a CDFI. Although at the time of investment the relief may be predictable, (e.g. £100,000 investment gives £25,000 relief) subsequent events may alter the amount of relief, for example a qualifying disposal.

The relief for the de minimis calculation should thus be calculated on a year by year basis and the relevant three years taken into consideration. The de minimis limit is expressed in euros. For the purposes of the calculation any sterling relief should be converted into euros at the investment date and anniversaries thereafter.

So the calculation becomes, using the £100,000 investment and an exchange rate of €1.20 to £1 and no disposal

Years 1 to 5 each year-–5% of £100,000 = £5,000, a euro equivalent of €6,000

The de minimis aid will be

  • Year 1 - €6,000
  • Year 2 - €12,000 (the sum of years 1 and 2)
  • Year 3 - €18,000 (the sum of years 1, 2 and 3)
  • Year 4 - €18,000 (the sum of years 2, 3 and 4)
  • Year 5 - €18,000 (the sum of years 3, 4 and 5)

2) Loan investment

Although the amount of relief on a loan is equivalent to that on equity, the calculation is made in a different manner and compares the rate of return (the CITR and interest received) with a commercial rate that could be achieved on the lending of an equivalent amount lent on a similar secured or unsecured basis (depending on the security of the actual loan made).

As with the equity calculation this needs to be done on a year by year basis and the relevant three years taken into consideration. Also any sterling relief should be converted into euros at the investment date and anniversaries thereafter.

Using the following the calculation becomes:

Loan £2,000,000

CITR 5% pa

Interest receivable from CDFI 5% pa

Interest chargeable at commercial rate 9% pa

Euro exchange rate €1.20 to £1

Years 1 to 5

CITR 100,000
   
Interest 100,000 
Total 200,000
Comm Int 180,000 
Net 20,000 (a euro equivalent of €24,000)

 

The de minimis aid will be

  • Year 1 - €24,000
  • Year 2 - €48,000 (the sum of years 1 and 2)
  • Year 3 - €72,000 (the sum of years 1, 2 and 3)
  • Year 4 - €72,000 (the sum of years 2, 3, and 4)
  • Year 5 - €72,000 (the sum of years 3, 4 and 5)

3) Relief available 

In the above examples the de minimis limit is not exceeded so the full relief will be available at 5% per year. If the de minimis limit is exceeded then the relief will need to be restricted. Say, for example in 2 the loan was £4m, the euro equivalent on the loan was €72,000 per year, then in year 3 the sum would be €216,000 and subject to the restriction to €200,000. So the available relief in year 3 would be 50/66 x 5% of the loan. Subsequent years would also need to calculate a possible restriction.

All de minimis aid needs to be taken into account for this calculation be it from CITR post April 2013 or any other type of de minimis aid to which the company is entitled.