Chapter 1: Introduction
815.This Chapter quantifies the tax reduction potentially available to a company, labels certain concepts and provides signposts to material contained elsewhere.
Section 218: Meaning of “CITR”
816.This section sets out a general description of the nature of the relief, an entitlement to tax reductions, and defines it as “CITR”. It is new.
Section 219: Eligibility for CITR
817.This section summarises the general conditions which need to be met for a company (“the investor”) to be eligible for CITR. It is based on paragraphs 1 and 4(1) of Schedule 16 to FA 2002.
818.Subsection (1)(a) requires that, for an investment in a CDFI to qualify for CITR, the CDFI must be accredited under Chapter 2 of Part 7 of ITA.
819.Chapter 2 of Part 7 of ITA provides that accreditation is to be made by the Secretary of State, sets out the criteria for accreditation, contains powers to determine the manner of making applications and the terms and conditions of accreditation, and authorises delegation of the Secretary of State’s functions. These functions have been assigned to the Secretary of State for Business, Innovation and Skills.
820.Sections 340 and 341 in Chapter 2 of Part 7 of ITA contain powers for the Treasury to make regulations. The regulations in force are the Community Investment Tax Relief (Accreditation of Community Development Finance Institutions) Regulations 2003 (SI 2003/96), made under the predecessor of those powers in paragraphs 4 and 5 of Schedule 16 to FA 2002, as amended by the Community Investment Tax Relief (Accreditation of Community Development Finance Institutions) (Amendment) Regulations 2008 (SI 2008/383).
821.Regulations may make different provision for bodies whose principal objective in providing finance is to invest in enterprises whose business does not consist of financing other enterprises or does so only to the extent permitted by the regulations. If such a body is accredited, it is designated as a retail community development finance institution (a “retail CDFI”). See the commentary on section 340 of ITA in the explanatory notes on that Act.
822.The distinction between a retail CDFI and an accredited CDFI which is not a retail CDFI (a “wholesale CDFI”) is relevant to the limits on the total value of investments which a CDFI can make for an accreditation period and which are set out in section 348(4) of ITA and section 229(4) of this Act. SI 2003/96 provides different limits on the value of investments which a retail CDFI and a wholesale CDFI may make in any enterprise.
823.As a consequence of the direct references to Chapter 2 of Part 7 of ITA in subsection (1)(a) of this section and elsewhere in this Part, it is unnecessary to rewrite paragraph 4(2)of Schedule 16 to FA 2002, as substituted by ITA, which contains signposts to the provisions of that Chapter.
Section 220: Form and amount of CITR
824.This section specifies the amount of the corporation tax reduction available and the accounting periods for which it may be claimed. It is based on paragraph 20 of Schedule 16 to FA 2002.
825.The combined effect of subsections (2) and (3) is that the maximum tax reduction is 25% of the amount invested and is available at the rate of not more than 5% of that amount in each of five accounting periods beginning with that in which the investment is made.
Section 221: Meaning of “making an investment”
826.This section provides that an investment in a CDFI may take the form of a loan or an issue of securities or shares. It is based on paragraph 2 of Schedule 16 to FA 2002. See also section 256 which extends the meaning of “loan” to include certain alternative finance arrangements.
Section 222: Determination of “the invested amount”
827.This section sets out rules for determining the amount invested for the purposes of section 220.It is based on paragraph 21 of Schedule 16 to FA 2002. In particular, it deals with the complications which arise where a loan may be drawn down in tranches, by requiring the average capital balance of the loan in relation to the accounting period to be calculated.
Section 223: Meaning of “the 5 year period” and “the investment date”
828.This section provides the definitions of two significant terms. It is based on paragraph 3 of Schedule 16 to FA 2002. “The 5 year period”, which begins with “the investment date”, is the period during which conditions as to the repayment or redemption of the investment are imposed.
Section 224: Overview of other Chapters of Part
829.This section indicates the subject matter of the Chapters of this Part not previously mentioned in Chapter 1. It is new.