As the owner of a company tax efficient investments can save- and make- you thousands.
There are a number of income tax friendly investment schemes that are sanctioned by the government- the EIS, seed EIS and VCT schemes to name a few. However, this is lesser the case for corporate investors. The fewer opportunities for companies to minimise tax through investment is likely to be part of the reason why corporation tax rates are more generous that income tax rates.
Community Investment Tax Relief (CITR)
Community Investment Tax Relief (CITR) is a type of investment scheme that can be benefited from by companies.
The CITR scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses and other enterprises in less advantaged areas by investing in accredited Community Development Finance Institutions (CDFIs).
The tax relief is available to individuals and companies and is worth up to 25% of the value of the investment in the CDFI. The relief is spreadable over 5 years, starting with the year in which the investment was made.
CITR is not ad flexible (in terms of potential investment targets) as the EIS relief because it is specifically aimed at encouraging investment in disadvantaged areas and communities.
Form of Investment in CDFI
You can subscribe for shares in the CDFI or make a loan to it.
If you opt in to invest through shares, there is a minimum holding period of 5 years. If the shares are sold before this period, relief is withdrawn.
If you choose to invest through a load, it needs to made available in full. However, a drawdown over a period of no more than 18 months is permitted.
In order to claim the relief you company must:
· Be the sole beneficial owner of the investment
· Not control the CDFI
· Not be a CDFI itself
· Not make an investment as part of a scheme to avoid tax
Once a qualifying investment is made and a certificate is issued, the company can clam a deduction of the lower of:
· 5% of the amount invested
· The amount of corporation tax due
For the accounting period including the date of which the investment and the accounting periods in which the following four anniversaries of that date follow.