7 May 2019
The government has recently opened a consultation on the future of the Social Investment Tax Relief (SITR), as it acknowledges that take up by social enterprises and investors has fallen well below expectations.
The SITR scheme
The scheme, initially introduced in 2014, was intended to boost the market for social investment by providing tax incentives for individuals to support social enterprises and certain charities, and so help these enterprises access new sources of finance. It was hoped that this would help to address the difficulty that social enterprises experience in trying to finance their growth through mainstream lenders.
Like the better known Enterprise Investment Scheme (EIS) for commercial businesses, SITR allows investors to deduct 30% of the cost of a qualifying investment from their income tax liability, and can also be used as a means to defer capital gains. Unlike EIS however, investments under SITR can take the form of loans as well as equity; with many social enterprises unable to issue shares because of their legal structure.
Social enterprises are required to spend the funds they raise through SITR on their trade. The expectation is that the investment will help the social enterprise to carry on a trade, and generate profits, that will provide a social benefit.
The consultation
In the consultation, the Treasury quote official statistics published for the first three years of the scheme, from its introduction in 2014 to the end of the tax year 2016-17, which indicate that around 50 social enterprises have raised £5.1 million of investment through SITR. This compares with the initial prediction, on launch, that the scheme would generate £83.3 million in investment in its first three years.
The consultation asks investors and investees to share their experiences of the SITR so far, as well as canvassing views more widely on why the use of SITR has been lower than previously anticipated; with responses encouraged from social enterprises who could have used SITR, but have not, and those who want to use the scheme but cannot.
The consultation closes on 17 July. To find out more go to: https://www.gov.uk/government/consultations/social-investment-tax-relief-call-for-evidence
If you would like to discuss this scheme, or any other funding options, please contact me or your nearest UHY charity sector expert.
Alternatively, you can read more about the services we provide to charities here.
