CIC Association

Serving Community Enterprise

Expanding the (SITR) Social Investment Tax Relief - Govt and EU need the facts

Govt are hoping to expand the recently announced SITR scheme and need your help building the case for market failure as required for getting EU approval.

To succeed we have to show strong evidence of market failure and we need your stories to do this. If you have been refused finance or have an informed opinion on the subject please submit evidence via the questions in the attached document on page 26 onward.

Your contribution really will help shape the argument, the small cases matter just as much as the larger ones so please make an effort as we have very little evidence to make a case with, should Govt focus on a larger scheme or should they focus on doing more in the £100k or less area for example?

We can and are being listened to, Ive learned that we can have an influence but we have to make an effort and get our voice heard in good time.

We've got a long way to go regarding finance, it will always be difficult but we can improve the options and this space is to help CICs understand the new schemes being proposed and how we can influence their development.

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The existing relief (basic info below) has been approved and received Royal Assent this month, it is available to you now

Social investment tax relief

The government’s new tax relief scheme for social investment encourages individuals to support social enterprises and helps social enterprises access new sources of finance.

How investors benefit

Individuals making an eligible investment at any time from 6 April 2014 can deduct 30% of the cost of their investment from their income tax liability for 2014/15 (or the relevant later year in which the investment is made). The minimum period of investment is 3 years.

If individuals have chargeable gains in 2014-15 (or a later year) they can also defer their capital gains tax (CGT) liability if they invest their gain in a qualifying social investment. Tax will instead be payable when the social investment is sold or redeemed. They also pay no CGT on any gain on the investment itself, but they must pay income tax in the normal way on any dividends or interest on the investment.

Eligibility

The income tax and capital gain tax reliefs provide a substantial incentive for investors. To make sure new investment is directed to the organisations which need it most and to meet EU regulations, the investment and the organisation receiving it must meet certain criteria.

Organisations must have a defined and regulated social purpose. Charities, community interest companies or community benefit societies carrying out a qualifying trade, with fewer than 500 employees and gross assets of no more than £15m may be eligible.

Other conditions and criteria also apply, which can be found in the HMRC guidance.

How enterprises apply for approval

Social enterprises will need to apply to HMRC after the Finance Bill has been passed into law (which is due in July 2014) to confirm that they meet the requirements of the scheme. Investors will be able claim tax relief once this confirmation has been given.

Social impact bonds

Investments in social impact bond companies, which enable social enterprises to deliver services to achieve certain contracted social outcomes, will also be eligible for the tax relief. The guidance and legislation covering the accreditation scheme for companies issuing social impact bonds is being worked on and will be available this summer.

Maximum amount of SITR investment

Under EU rules governing the initial introduction of the social investment tax relief, individual enterprises can only receive a certain amount of government subsidised investment. The limit is €344,827 (about £290,000) over three years. The exact sterling equivalent is the spot exchange rate on the date of investment.

Individual investors can invest up to £1,000,000 and can invest in more than one social enterprise. This is independent of any investments under Seed Enterprise Investment Scheme and Enterprise Investment Scheme which are subject to their own annual investment limits.

Full guidance and further information

HMRC guidance is available here. The legislation is at schedules 9 and 10 of the Finance Bill 2014 which can be found here.

Application details will be available online after the Finance Bill has been passed into law.

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