Our Response to Social Investment Tax Relief Announcement in Budget 2014

As of 6 April 2014, individual investors in small social enterprises can benefit from the new Social Investment Tax Relief (SITR) set at a rate of 30% income tax relief.  This is the same level as the rate for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).  The first box has been ticked.

Unlike EIS, however, this new tax relief applies to debt instruments (in addition to equity) as the majority of social sector organisations (SSOs) do not have equity capital.  Additionally, the government has recognised that social enterprises tend to have more employees than commercial SMEs and has doubled the size ceiling on number of staff for eligible investee organisations.  The gross assets test remains the same for social and commercial enterprises.

Whilst eligible investee organisations will from April 2014 onward be able to receive tax advantaged investment up to approx. £290,000 (€344,827) over three years, we look forward to the results of the application to the EU for a larger scheme.  We hope that this larger scheme will also reflect the EIS and VCT rules and enable eligible investees to raise up to £5 million over any rolling 12 months. This is the second box to be ticked to create a level playing field.

Lastly—our third tick—relates to indirect investments.  As it is (for the most part) currently used, EIS is a tax wrapper for high net worth individuals.  Individuals with medium levels of liquid wealth may find single EIS-style investments too risky.  An indirect investment opportunity may prove attractive to the broader investing public as diversification reduces risk.  The Treasury is in the process of working out what this indirect investment vehicle might look like.  This is the last and final tick to create a workable ecosystem of tax benefits to expand the growing impact investor universe and create new pools of funding for social enterprises.

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