Big Society and Social Investment Tax Relief

 

Big Society was and still is a thorny ideology. The concept most recently surfaced as the Big Society Policy, strongly advocated for by David Cameron as his ‘big idea’ in 2010, who put a range of Cabinet Office and other government resources together to form, amongst other things, Big Society Capital bank, the Power to Change Trust, the Localism Act (2011) powers, plus tax policy measures including Social Investment Tax Relief (SITR) – all of these measures intended to lead to outcomes like

  • Giving communities more powers
  • Encouraging people to take an active role in their communities
  • Transferring power from central to local government
  • Supporting co ops, mutuals, charities and social enterprises
  • Publishing government data.

These are commendable outcomes, but commentary at the time of the launch put this vision against the backdrop of severe austerity cuts (that we are still facing and experiencing the consequences of today), leading to criticism from some quarters that this work was and potentially still is a government money saving exercise.

One of the measures that Big Society put in place was Social Investment Tax Relief (SITR) which allows individuals to claim a 30% tax relief against investments they put into a social enterprise. Perhaps surprisingly, given its roots in a former political administration, SITR received an upgrade recently – previously an enterprise could only issue around £300,000 of SITR eligible investment but following the passing of the 2017 Finance Bill recently, this limit has been increased to £1,500,000. This stands to benefit plenty of social enterprises as they might expect this higher level to increase their investment-potential through increasing support from individual investors. Our Power is an example of a co-operative trying to take advantage of this, and would be one of the first enterprises to benefit from this new rule if it receives notice that it and its investors are eligible for the extended threshold.

 At Ethex, we definitely welcomed this increase to the SITR limit as the likely impact will be to enable more money to do good. However, this isn’t a silver bullet on its own and more work still needs to be done – especially given the previous take up of SITR deals was minimal – according to Power to Change there have only been 30 deals since 2014 with a total raise of approximately £2.8m

This compares poorly with other tax reliefs available such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). According to the Enterprise Investment Scheme Association companies raised £1,888 million via EIS and £180m from SEIS in 2015/16 which contrasts starkly with the £2.3 million raised from SITR deals in the same year. Whilst these Enterprise Initiatives have been successful in channeling significant amounts of monies, SITR deals by comparison are pretty paltry.

Given that the new higher SITR threshold has now come into force, outlined below are a number of changes that Ethex believes would significantly help to improve the take up and effectiveness of SITR:

  • Shorten the current 12-week waiting time that HMRC takes to determine whether social enterprises are given advance notice of eligibility. Each process needs to be undertaken on a case by case basis and this results in a time consuming and cumbersome process. If applications could be reviewed against a list of predetermined criteria, then this would help to speed up the process considerably.
  • Don’t exclude sectors that have the potential to make a significant social impact. In particular many social enterprises from the renewable energy, housing and food production sectors are excluded from applying for SITR. Given some of the most critical issues facing the UK affect these sectors including; climate change, food production post Brexit and chronic shortages of social houses, it seems crazy that these sectors aren’t eligible.
  • Examine the exclusion of leasing activities from SITR, it seems counter to the spirit of the policy to prevent, for example, community sports clubs from renting out facilities such as all weather pitches or community pubs that have tenancy agreements with their landlords
  • Provide total transparency in terms of decision making. SITR was designed as a way in which social goods and services could be delivered without having to spend money through different government bodies. Yet according to Power to Change a third of applications are being turned down. With no transparent flow of information it’s difficult to determine why this is and then what can ultimately be done to raise the acceptance levels.
  • Make the process of accessing the tax relief as straight forward as possible for investors. Most people who pay tax don’t fill out tax self-assessment forms or want to go through the hassle. If the process of accessing the tax relief could be made more efficient then this would again remove a hurdle to the investor to take up SITR.

This isn’t necessarily about reaching the dizzy heights of raising the sums of investment seen with SEIS and EIS however, it is about making SITR fit for purpose and ensuring that we have a robust system that is also capable of channeling investment to social enterprises that are addressing critically important social issues.

For more information about SITR from a social enterprise or investor perspective or to see our current SITR eligible offers from Our Power and Bovey Paridiso visit www.ethex.org.uk

https://www.ethex.org.uk/savings--investments_16.html

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