SJP - VCT Guide

31 30 CLAIMING THE RELIEFS Process for claiming income tax relief VCT income tax relief can be used to reduce or offset any income tax liability for the tax year in which the VCT shares are issued (unlike EIS income tax relief, VCT income tax relief cannot be carried back to a prior year). In any single tax year investors cannot claim more income tax relief than the amount of income tax owed, and investors can only claim tax relief on the first £200,000 invested. Investors should therefore carefully consider the merits of investing more than they need to in order to cover their tax bill in the current year. Once the shares are issued, the VCT’s Registrar will send tax and share certificates to investors. Investors can then either claim the tax relief: • by reducing their monthly tax bill through PAYE (if they are employed); or • via the self-assessment tax return process. Some VCTs enable regular direct debit subscriptions from investors, spreading the subscription over a period of time. While this reduces ‘lump-sum’ investments, it will result in multiple tax and share certificates, where shares are allotted on more than one date. To claim through PAYE Investors can call HMRC but may also need to write a letter to them including their national insurance number, form P60 (if they have one), and a copy of their VCT tax certificate. To claim via the self-assessment process Investors need to complete the additional information form SA101 and enter the total value of their VCT investments in the appropriate section of the form. Tax-free dividends Investors who receive exempt dividends do not have to declare them on their tax returns. Many VCTs have automatic reinvestment schemes, which allow investors to use the VCT dividend (which is ordinarily tax-free) to buy more shares in the VCT. With some exceptions, usually the shares are newly- issued rather than bought in the market, meaning that the amount reinvested qualifies for 30% income tax relief as a fresh VCT subscription. Tax-free growth If disposal relief is due, an investor won’t have to pay CGT on any gain made on the disposal of VCT shares. For both tax-free dividends and tax-free growth there are a number of conditions that have to be met, including: • Relief is limited to acquisitions not exceeding £200,000 worth of VCT shares in any one tax year; Self Assessment Form SA101 for claiming VCT tax relief SA101 2018 Page Ai 2 Share schemes and employment lump sums, compensation and deductions, certain post-employment income and patent royalty payments 1 Share schemes – the taxable amount – excluding amounts included on your P60 or P45 £ 0 0 • Box 2 is not in use 3 Taxable lump sums and certain income after the end of your job – excluding redundancy and compensation for loss of your job £ 0 0 • 4 Lump sums or benefits received from an Employer Financed Retirement Benefits Scheme excluding pensions £ 0 0 • 5 Redundancy, other lump sums and compensation payments - the amount above the £30,000 exemption £ 0 0 • 6 Tax taken off boxes 3 to 5 £ 0 0 • 7 If you have left box 6 blank because the tax is included in box 2 on the ‘Employment’ page, put ‘X’ in the box 8 Exemptions for amounts entered in box 4 £ 0 0 • 9 Compensation and lump sums up to £30,000 exemption £ 0 0 • 10 Disability and foreign service deduction £ 0 0 • 11 Seafarers’ Earnings Deduction – give the names of the ships in the ‘Additional information’ box on page Ai 4and enterpayonyour ’Employment’page £ 0 0 • 12 Foreign earnings not taxable in the UK £ 0 0 • 13 Foreign tax for which tax credit relief not claimed £ 0 0 • 14 Exempt employers’ contributions to an overseas pension scheme – readthenotes £ 0 0 • 15 UK patent royalty payments made £ 0 0 • Other tax reliefs – read the notes 1 Subscriptions for Venture Capital Trust shares – the amount on which relief is claimed £ 0 0 • 2 Subscriptions for shares under the Enterprise Investment Scheme – the amount on which relief is claimed (and provide more information on page Ai 4) £ 0 0 • 3 Community Investment Tax Relief – the amount on which relief is claimed £ 0 0 • 4 Annual payments made £ 0 0 • 5 Qualifying loan interestpayable in theyear £ 0 0 • 6 Post-cessation trade relief and certain other losses £ 0 0 • 7 Maintenance payments (maximum £3,260) – only if you or your former spouse or civil partner were born before 6 April 1935 £ 0 0 • 8 Payments to a trade union etc. for death benefits – half the amount paid (maximum £100) £ 0 0 • 9 Relief claimed on a qualifying distribution on the redemption of bonus shares or securities £ 0 0 • 10 Subscriptions for shares under the Seed Enterprise Investment Scheme £ 0 0 • 11 Social Investment Tax Relief – the amount on which relief is claimed £ 0 0 • • The investor is an individual (not a trustee); • The investor is aged 18 or over at the date of disposal. To claim tax-free growth, the company must be an approved VCT both when the shares are acquired and when the investor disposed of them. Any loss made on the disposal of VCT shares isn’t allowable for capital gains purposes. Investors in VCTs can claim income tax relief up to four years after the 31 January following the tax year in which they made the investment. Sample VCT income tax relief certificate Claiming the tax reliefs Where individuals to whom new ordinary VCT shares have been issued so request, VCTs must, within 30 days of the request, issue income tax relief certificates. In practice VCTs may issue certificates as a matter of routine along with share certificates. The certificate should show the name of the investor, the investor’s permanent address, including postcode, the date on which the shares were issued, the amount paid and the date it was paid, and in the case of partly paid shares, the amounts and due dates for future payments. The certificate should certify that eligible shares have been issued to the investor, to the best of the VCT’s knowledge and belief the shares were subscribed for and issued in accordance with ITA07/ S261(3) (shares subscribed for and issued for genuine commercial purposes and not as part of a tax avoidance scheme). HMRC Venture Capital Schemes Manual: VCTs