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  • Tamsyn Jefferson-Harvey

Social Investment Tax Relief

Social Investment Tax Relief

I read an article recently about Social Investment Tax Relief (SITR) which aimed to raise awareness of this mostly unheard of tax relief. And I thought that if ZERO accountants out of 100 that had been surveyed had not heard of it, it was likely that the majority of business owners and individuals would also likely be in the dark. HMRC forecast an annual cost of up to £35m per year when they launched it five years ago, but in its first 3 years, it cost only £2m, and fewer than 100 applications have been made for the relief.

So what is SITR?

It was introduced five years ago to boost investment in social enterprises and charities. It encourages individuals to support social enterprises, helping social enterprises who are often squeezed for funds to provide their much-needed services and products. Investments up to £1.5 million can be made, of which you can claim 30% against your income tax liability. (The main stipulation is that the investment must be held for at least three years).

What Social Enterprises are entitled to receive the investments?

Any social enterprise with gross assets of less than £15m, fewer than 250 employees and carrying out a qualifying activity (some of those excluded are property development, energy, agriculture, road transport)

How can SITR be claimed?

At present the process of claiming SITR can be a fiddly - application forms have to be completed and sent off to HMRC (who aim to reply within 15 working days)

Why is social investment important?

Aside from supporting a social enterprise to grow or even get off the ground. Take a look at  three main reasons for social investment becoming more popular:

1. It recycles the money we have - the money from investment gets repaid, and can then be used to benefit other causes

2. It attracts new money - with schemes such as SITR, and a general heightened awareness of social enterprises, social investment is coming from a wider range of sources

3. More organisations can use it - the number of social enterprises are increasing, which means that more social enterprises are succeeding in their trades. A successful trading record also shows an improvement in growth and sustainability. 

How can Social Enterprises receive investment?

Social investment is money received by a social enterprise that is repaid to the investor (often with interest, although this is not a requirement). The investor expects to create a positive social impact from their investment by helping the social enterprise with much-needed startup or growth funds. There are a number of ways of obtaining investment for social enterprises, one of the best-known is Good Finance which helps social enterprises navigate the social investment landscape and find potential investors. There is nothing wrong with receiving investment from a private investor if they approach you themselves, but it would be wise to check any arrangement against other potential investors, or via a platform, to ensure you are getting the best deal.