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HMRC internal manual

Venture Capital Schemes Manual

VCT: investor income tax reliefs: ‘front-end’ income tax relief: how relief is claimed and calculated

ITA07/S262 & S263

A claim to relief can be made either in a tax return or as a stand-alone claim.

To claim relief in the tax return the claimant need only complete the appropriate box in the main return.

There is no set form for a stand-alone claim. The claim however must identify the amount of income tax relief claimed and the year of assessment in which the shares were issued.

For instructions regarding in-year claims for an adjustment to the claimant’s PAYE coding, see VCM51060. Those instructions make clear that no claim for in year relief against SA payments may be made except by way of a reduction in payments on account.

The claimant may have received an income tax relief certificate from the company (see VCM51050). HMRC officers should ask for this certificate only if they have reason to doubt the validity of the claim.

Relief is given in terms of tax for the year of assessment in which the shares were issued by the VCT. The relief due is the smaller of:

  1. an amount equal to tax at 30 percent (from 6 April 2006 onwards) on the amounts subscribed within the ‘permitted maximum’ (VCM51020), and
  2. the amount which reduces the individual’s income tax liability to nil.

The relief under (1) is calculated as the amount equal to tax at 30 percent whether or not the individual has a higher rate income tax liability for that year of assessment.

Relief should be given before any:

  • EIS relief,
  • income tax reduction in respect of private medical insurance payments,
  • double taxation relief,
  • basic rate tax to be retained on charges,

For the interaction with Gift Aid relief, see Charities and Tax.

For PAYE coding instructions, see VCM51070.