Coding: coding allowances and reliefs: community investment tax relief (CITR)
The Community Investment Tax Relief (CITR) scheme (sometimes called the Community Investment Tax Credit scheme) came into force on 23 January 2003. The Community Investment Tax Relief (CITM) Manual, which provides detailed guidance about CITR and the way it is administered, includes an outline of the scheme at CITM1010.
The tax relief available under the CITR scheme is based on the amount that an investor invests in an accredited Community Development Finance Institution (CDFI). Relief is given in terms of tax - equivalent to 5 per cent of the amount invested for each of five tax years. For further details see CITM6005 onwards.
Individual investors must formally claim CITR after the end of each relevant tax year (CITM6005). However, investors within PAYE can obtain the benefit of the relief in the current year by requesting an adjustment of their PAYE code (CITM6020).
SA record required
Where an individual obtains the benefit of relief through an adjustment of his current year code a formal claim must be made after the end of the tax year. So, any such individuals not already within SA should be brought into SA for the year for which the coding adjustment is made. If there is any inaccuracy in the relief given though the coding adjustment, this can be corrected when the return is submitted.
No SA record or dormant SA record held
You must set up an SA record where none held or re-activate any dormant SA record held. See SAM100221 for guidance on setting up an SA record or SAM101093 for guidance on re-activating a dormant record. Where a dormant record is re-activated, make an SA Note stating the reason.
Where the SA start date is earlier than CY, you must ensure the correct date is recorded in accordance with PAYE93032.
Interaction with other reliefs
CITM6040 deals with the determination of Income Tax liability for the purposes of CITR. You will need to take this into account when deciding in what order to calculate various coding allowances and deductions.
Coding descriptor to use
There are no plans to introduce a coding descriptor for CITR, 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. Use the description Concessional Relief. Further information can be found at PAYE130025.
How to give the relief
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 starting, basic or higher rates clearly exceeds the amount of relief due, divide the relief due in terms of tax by the individual’s highest rate to arrive at the coding allowance.
Where the estimated liability straddles the rates, use the best estimate you can.
Where the Scottish Rate of Income Tax applies, NPS will use the appropriate rate to calculate the relief.
Manual calculations, where the individual is a Scottish taxpayer, you need to make sure you use the appropriate Scottish tax rate for Scottish taxpayers.
Issue of P2
Advise the individual how you have given the relief. Describe the relief as Community Investment Relief. Let the system issue the P2, but remember that the relief will then automatically be described as Concessional Relief.
Where the Scottish Rate of Income Tax is applicable the tax code will include an ‘S’ Prefix.