Social investment tax relief 'strengthened' in the UK
The UK social investment tax relief (SITR) scheme is to be extended following a major budget announcement in the House of Commons on 3 December.
The Chancellor of the Exchequer, George Osborne, revealed in his autumn statement that the government will seek EU approval to "strengthen" SITR by increasing the number of investments eligible for it. The tax relief gives individuals investing in qualifying social organisations a reduction of 30% of that investment in their income tax bill for that year.
The government will request permission to increase the investment limit to £5 million a year per organisation up to a maximum total of £15 million per organisation over an unspecified number of years. Previously, under EU rules governing the initial introduction of the SITR, organisations could only receive £290,000-worth of government-subsidised investment over three years.
Mike Mompi is the director of ventures at ClearlySo and worked with the Cabinet Office on the extended SITR proposals set out in today's autumn statement. He told Pioneers Post: “I feel incredibly positive about this – this will open the social investment tax relief to larger, more established high-impact businesses, and will increase the overall amount of impact capital that will flow into the sector.
“Specifically, fund structures, mature social enterprises and charities, as well as debt structures combining individual with institutional investors, will become more prevalent. So far, SITR has had a slow start and this is something that will certainly help to accelerate it.”
Winner of the UK's social investment conference Good Deals 2014's pitching competition FC United of Manchester is currently raising capital using SITR to develop the club’s stadium and community facilities.
“This initiative helps us further engage our supporters both through the facilities we can provide and as investors. This investment will make a big difference to an area of Manchester in dire need of this sort of community-led regeneration,” said Andy Walsh, general manager of FC United.
Some of the biggest issues with the SITR, which was implemented in April this year, have involved exclusion and scale. In order to adhere to EU rules, only specific organisations are considered eligible for the tax relief, leaving out some social enterprises, for example, those legally structured as companies limited by guarantee and those with more than 500 full time or equivalent employees.
We hope that the government will continue to keep the relief under review.
Increasing the investment limit helps tackle this issue of scale, allowing more charities and social enterprises with ambitious growth plans access to SITR.
Chief executive of the London Early Years Foundation June O’Sullivan MBE said: “Our mission is to grow the London Early Years Foundation to benefit as many children as possible in their formative years. Our ambition can only be realised with substantial investment and we believe that by increasing the cap on SITR we should be able to access new sources of appropriate and affordable finance in the future to build on what we have already achieved.”
However, senior policy officer at NCVO Andrew O'Brien highlighted that "there is still room for improvement".
He told Pioneers Post: “The big increase in the SITR investment limit for organisations is welcome, following recommendations by NCVO and Charity Finance Group to increase the threshold. We believe that these changes will make the relief more effective for charities and CICs.
"However...charities’ wholly owned subsidiaries are still not eligible and the cap on employee numbers and assets will mean that some charities which need access to finance will not be able to take advantage of the relief. We hope that the government will continue to keep the relief under review.”
The changes to SITR will come into effect on or after 6 April 2015, subject to European Commission state aid clearance.
Chief executive of Big Society Capital Nick O'Donohoe said: "We very much welcome the government’s announcement and hope the EU Commission will expedite the State Aid approval process that is required for it to be enacted."
Photo credit: Conservative Party