Enterprise Investment Scheme (EIS)
EIS investments are investments into qualifying unquoted companies, including alternative investment market (AIM) companies. Currently an individual can make an investment of up to £500,000 in 2011/12 and obtain 30% income tax relief. The maximum amount you can invest in an EIS is £500,000 for 2011/12 and this will increase to £1,000,000 from 6 April 2012. From 5 April 2012, the new SEIS – Seed Enterprise Investment scheme - will allow 50% income tax relief, irrespective of your rate of tax, in respect of SEIS investments up to £150,000 per company. This will run alongside existing EIS tax reliefs.
Elect for previous tax year
It is possible to elect for the EIS investment to be treated for tax purposes as if it was made in 2010/11 and obtain 20% income tax relief for that tax year.
You must have a tax bill in order to use the EIS tax reliefs, as the tax itself is reduced through the EIS investment. It could be that you have used maximum venture capital trust (VCT) or pension contribution relief in this tax year and your tax bill is insufficient for an EIS investment, however, you could make an EIS investment and elect it back to the previous tax year.
Reduce Payments on Account
This methodology is useful if you wish to reduce your payments on account under self assessment for the year going forward – or if you have miscalculated your payments on account and wish to ensure that they are reduced.
Effective carry back dates
The carry back to the previous tax year must occur between 6th April and 5th October in the current tax year, and will be subject to the relief limit in that tax year.
Loss Reliefs
Losses made by individuals can be offset against capital gains (at 28%) in the year of loss or a future year, or against income (at up to 50%) in the year of the loss or the previous year. EIS qualifying shares sold at a loss gives rise to loss relief available on the net loss at the individual’s marginal rate of tax.
Tax Tip
EIS (but not VCT) investments can reduce tax payable in the previous tax year, as can loss relief. Individuals making a higher risk investment and wishing to reduce tax payments on account could consider EIS investments.
Unclaimed Pension Allowances
It is estimated over 25% of people eligible for additional pension contribution tax relief do not claim it. Contributions made by you personally or through salary deduction to some schemes carry a 20% uplift (at the basic rate) by HMRC. If a higher rate or additional rate taxpayer, you can claim a further 20% -30% of the gross contribution back from HMRC. You now have 4 years to go back and the current year to reclaim any unclaimed tax relief.
Tax Tip
Check to see if you have claimed higher rate or additional tax relief – go back 4 years, then claim it if you have not done so. This will be the case if you earned over £42,575 in this tax year, and lesser amounts in previous tax years.
Carry Back Gift Aid Donations to previous tax year
You can ask for Gift Aid donations to be treated as being paid in the previous tax year, but you must have paid enough tax in that year to cover any Gift Aid donations you made, plus the ones you want to backdate.
This must be done by is 31 October if you file a paper tax return, or 31 January if you file online (or ask for form P810 Tax Review if you don’t complete a tax return – to be sent no later than 31 January after the end of the tax year to which you wish to backdate your gift.
Practical Tip
You can also claim back higher-rate tax relief for any tax-deductible charitable gifts you have made. If you have been missing out on your higher-rate tax relief for years, the good news is you can make a backdated claim.
Tony Granger
