After consultation the government announced a new tax relief just before Xmas, aimed at prospective investors in Social Enterprise – Social Investment Tax Relief (SITR).
The relief looks to work in a very similar way to EIS and SEIS, by giving tax relief to individuals for investing in qualifying enterprises, but there are interesting differences:
- The relief is not available for investment in energy generators in receipt of FITs.
- It is only available to investment in CICs, Ben Coms and Charities (not Co-operative Societies). This is a strange political decision, justified by the government due to the possibility that a Co-operative Society can convert to a Community Benefit Society with the approval of the Financial Conduct Authority. However there are many occasions when a Co-operative Society is the better legal form, not least the ability to pay a dividend relating to the members’ trade with the co-op.
- The relief applies to loans/bonds too, unlike EIS and SEIS which only apply to investment in shares. The decision to exclude Co-operative Societies is a real shame as many social enterprise Co-operative Societies (for example Unicorn Grocery and Rootstock) use loanstock to raise finance from non-members but will not benefit from any form of investment tax relief.
- SITR doesn’t appear to be restricted to certain qualifying trades as much as EIS/SEIS – possible use for agriculture and even land trusts depending on interpretation by HMRC. This is an exciting development, which means that land-based agricultural community share offers to purchase land for sustainable agriculture may now be able to incentivise that investment in a way that hasn’t existed before as agriculture is specifically excluded for EIS and SEIS.
So we still don’t know what the rate of relief will be – there is political pressure from the charitable sector to keep it at or below 25% so as not to disincentivise gift aid donations. Watch this space.
Community Benefit Societies already dominate the community share sector apart from some energy co-operatives. SITR for non-energy community share initiatives is likely to reinforce this domination. This will no doubt please the FCA who have always been less comfortable with the use of Co-operative Societies for community energy investment where there is rarely a direct trading relationship between the investor members and the Society – they don’t use the electricity generated.
I’ve attached the latest consultation draft I can find about this: Social_investment_tax_relief
Further information about the consultation can be found at: https://www.gov.uk/government/consultations/consultation-on-social-investment-tax-relief