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LB 1: Tax credits for PAYE income payments
or “Getting money back for taxes your employer took from your pay”
You could also call this:

“How companies can share tax credits with shareholders who are also employees”

This section applies to certain companies and their shareholders who are also employees. If you work for a company and also own part of it, this might affect you.

When the company pays you money, either as a special payment or as a shareholder salary, the company might take some tax out of that payment. The company gets a tax credit for this.

Even though companies usually can’t give their tax credits away, in this case, the company can ask to transfer some of its tax credit to you. This is treated as if you had paid too much tax.

When the company transfers some of its tax credit to you, the company’s tax credit gets smaller by that amount. The transfer is treated like a tax refund for the company.

Your own tax credit gets bigger by the amount the company transfers to you.

This helps make sure the right amount of tax is paid when you’re both an owner and a worker in a company.

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Next up: LB 2: Tax credits for provisional tax payments

or “You can get a credit for provisional tax payments made by you or on your behalf”
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Part L Tax credits and other credits
Tax credits for payments, deductions, and family payments

LB 1BTreatment of tax credits of certain companies with shareholders who are employees

  1. This section applies when—

  2. a company to which section RD 3B or RD 3C (which relate to income derived by shareholders who are employees) applies, pays an amount to a person who is both a shareholder and an employee of the company; and
    1. the amount is paid or allocated—
      1. under section GB 29 (Attribution rule: calculation); or
        1. as a shareholder salary, being a payment treated as income other than from a PAYE income payment under section RD 3B(1)(b) or RD 3C(1)(b); and
        2. an amount of tax has been withheld from the payment in relation to which the company has, or will have, a tax credit under section LB 1.

          1. Despite section LA 6(2)(a) to (c) (Remaining refundable credits: PAYE, RWT, and certain other items), the company may apply to have an amount of the company’s tax credit transferred under section LA 6(2)(d) to the person, treating the amount as tax paid in excess.

          2. The amount of the company’s tax credit under section LB 1 is reduced by the amount that is transferred to the shareholder and, for the purposes of section OB 32 (ICA refund of tax or transfer from account), the amount transferred is treated as a refund of income tax.

          3. The amount of the shareholder’s tax credit under section LB 1 is increased by the amount that is transferred under subsection (2).

          Notes
          • Section LB 1B: inserted, on (with effect on 1 April 2017), by section 154 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
          • Section LB 1B(3): amended, on , by section 129 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).