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HMRC internal manual

Venture Capital Schemes Manual

From
HM Revenue & Customs
Updated
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VCT: investor income tax reliefs: ‘front-end’ income tax relief: PAYE coding

There is no coding descriptor for VCT ‘front-end’ income tax relief, nor a coding restriction to claw back excess relief.

The HMRC officer 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 PAYE10075.

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