Enterprise Investment Scheme (EIS)

Psyduck1980

I have recently made a small investment in a private company and I have been advised my investment qualifies for 30% tax relief under EIS. Please can anyone advise how this works in practice via PAYE - is there a tax code adjustment? TIA.

eskbanker

It may ultimately involve tax code adjustment but will depend on values, etc - it's initially handled via self-assessment, so best to read up on how it all works at sites like https://www.gov.uk/government/publications/enterprise-investment-scheme-income-tax-relief-hs341-self-assessment-helpsheet/asdg

Dazed_and_confused

is there a tax code adjustment?

Not in your case. It is too late in the tax year for that to happen now so you will need to contact HMRC and check if they will send you a caclulation and refund in due course for 2017:18 or whether a Self Assessment return is required.

mostwelcome

Psyduck1980 wrote: »

… have been advised my investment qualifies for 30% tax relief under EIS

Have you received an EIS3 certificate for your investment? (It looks like any other HMRC form – green writing at the top and pale green sections with boxes on the front).

If not, your investment doesn't qualify yet… but will do once you receive this form.

Psyduck1980 wrote: »

Please can anyone advise how this works in practice

Once you've received the EIS3:

- Do you do self assessment? You can enter the details from the EIS3 on your tax return. Simplest method. You can choose to have the tax relief accounted for in your calculation of income tax owed… or you can choose to have your tax code adjusted (i.e. your Personal Allowance goes up by the amount you invested).

If you don't complete a tax return, you have to send it to HMRC and they can either send you a cheque for the tax relief or, as above, change your tax code.

All the above assumes that you paid equivalent or more in income tax for the tax year in which the EIS3 is issued, or the previous tax year.

Dazed_and_confused

EIS investments cannot ever increase the Personal Allowance.

You may be getting confused between the Personal Allowance and tax code number?

And the op cannot get tax relief for their investment through their tax code. It is simply too late in the tax year for this to happen (a HMRC person on the Cutting Tax board posted about this the other day) and EIS relief for one year couldn't be refunded through the tax code for a different tax year.

The only options for getting any refund due is via Self Assessment or HMRC sending a calculation for the 2017:18 tax year (sometime after the tax year ends).

Psyduck1980

Thanks to all who have responded.

mostwelcome wrote: »

Have you received an EIS3 certificate for your investment? (It looks like any other HMRC form – green writing at the top and pale green sections with boxes on the front).

If not, your investment doesn't qualify yet… but will do once you receive this form.

Not yet, as the investment hasn't been processed yet. However, I know that I will need it in order to make the application for the tax relief.

mostwelcome wrote: »

Once you've received the EIS3:

- Do you do self assessment? You can enter the details from the EIS3 on your tax return. Simplest method. You can choose to have the tax relief accounted for in your calculation of income tax owed… or you can choose to have your tax code adjusted (i.e. your Personal Allowance goes up by the amount you invested).

If you don't complete a tax return, you have to send it to HMRC and they can either send you a cheque for the tax relief or, as above, change your tax code.

All the above assumes that you paid equivalent or more in income tax for the tax year in which the EIS3 is issued, or the previous tax year.

I don't complete a tax return but I pay enough tax to cover the relief. Can I choose between a one-off payment or a tax relief adjustment? If I opt for the latter does the tax code just get adjusted for one tax year before reverting to its "normal" value the following year?

Dazed_and_confused

You can only receive relief through your tax code if the investment was made in 2018:19 or later tax year.

In your original post you said you had recently made the contribution so it seems as though it is for 2017:18 and therefore you have missed the boat as far as getting relief through your tax code.

If you don't complete a self assessment return you just need to contact HMRC (sending part of the EIS3?) and they will send you a calculation for 2017:18.

You probably won't get a cheque though. They have started inviting people to claim the refund as a bank transfer i.e. you get your calculation showing tax overpaid of £x and can go onto your Personal Tax Account and enter your bank details for the refund to be paid into your account.

bowlhead99

Psyduck1980 wrote: »

I don't complete a tax return but I pay enough tax to cover the relief. Can I choose between a one-off payment or a tax relief adjustment?

Not quite sure on your terminology of 'tax relief adjustment'. But:

When you get your paperwork (presumably this will be in 2018/19) you will be able to claim it for the year you get it or carry it back to the last year.

If you carry it back to the last year you will have paid more tax than you needed for 2017/18 so they will owe you some money. You can probably have that tax overpayment for 2017/18 sent to you by bank transfer. Alternatively if you claim it for 2018/19 and it is early enough in the tax year for them to be able to sort it out through your tax code, they can amend your tax code, so you pay less PAYE on your salary for the rest of 2018/19.

Or you can be slower about it and include the paperwork when you voluntarily do a 2018/19 tax return somewhere between 6/4/19 and 31/1/20, at which point it will show that you have overpaid tax for the 2018/19 year and you can ask for a cash repayment or - if you're really not in a hurry - adjust the following year's tax code...

If I opt for the latter does the tax code just get adjusted for one tax year before reverting to its "normal" value the following year?

Yes it would revert, as they can't permanently assume you will keep identifying suitable investment opportunties in EIS qualifying companies on an ongoing basis that allow you to spend £x per year and qualify for £0.3x relief each year.

Psyduck1980

Dazed_and_confused wrote: »

You can only receive relief through your tax code if the investment was made in 2018:19 or later tax year.

In your original post you said you had recently made the contribution so it seems as though it is for 2017:18 and therefore you have missed the boat as far as getting relief through your tax code.

If you don't complete a self assessment return you just need to contact HMRC (sending part of the EIS3?) and they will send you a calculation for 2017:18.

You probably won't get a cheque though. They have started inviting people to claim the refund as a bank transfer i.e. you get your calculation showing tax overpaid of £x and can go onto your Personal Tax Account and enter your bank details for the refund to be paid into your account.

Thank you - this makes perfect sense. Apologies if the OP was misleading - I have "pledged" the investment but not actually paid the money across to the private company. As such I'm not sure if the investment will be considered 2017/18 or 2018/19.

Dazed_and_confused

Unfortunately this is one of the problems with some of the threads on here!

I took your original opening line - I have recently made a small investment in a private company - to mean you had actually made the investment.

If the investment is made in 2018:19 then the quickest way to get the tax relief would be to ask HMRC to adjust your tax code to include the relief due. It will be spread out over the course of the tax year but you will have received it all by 5 April 2019, before you could get it via a Self Assessment return or by HMRC reviewing your tax position following the end of the tax year.

bowlhead99

Psyduck1980 wrote: »

Thank you - this makes perfect sense. Apologies if the OP was misleading - I have "pledged" the investment but not actually paid the money across to the private company. As such I'm not sure if the investment will be considered 2017/18 or 2018/19.

Dazed_and_confused wrote: »

Unfortunately this is one of the problems with some of the threads on here!

I took your original opening line - I have recently made a small investment in a private company - to mean you had actually made the investment.

Even if you had handed the cash over rather than merely pledged it, the relief only becomes claimable once an EIS3 has been sent to you.

The company can't apply to HMRC for the tax signoff until it has existed for a few months and the particular round of funding will take time to get permission from HMRC even if they pre-cleared it. In some cases it could take more than an entire tax year to be in a position to be able to make the claim (which is no doubt one of the reasons they allow you to carry back to a previous tax year for the relief, aside from just generally being a nice thing to do to allow you to spend your high income one year on qualifying investments the next year).