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Community Investment Tax Relief, real world returns and social impact

Community Investment Tax Relief, real world returns and social impact


Social enterprises and local businesses in under-served areas and communities struggle to access finance and find themselves often excluded from the opportunity to borrow money to grow their business. The Community Investment Tax Relief was set up in 2002/03 by the government with the aim to encourage high net worth individuals and companies to invest in local businesses over the long-term. The CITR scheme is jointly run by HMRC and the Department for Business, Energy & Industrial Strategy (BEIS) and is available to accredited Community Development Finance Institutions (CDFIs).

Birmingham-based ART Business Loans is one of the 33 accredited CDFIs that can take on CITR investment. Since 1997 ART has been lending successfully to small businesses and social enterprises, particularly those in under-served areas and communities. For 2019 ART has announced a new community share issue that will look to raise £500,000 in additional capital to support its work in the next financial year, and is looking for individuals and businesses to buy ART shares.

This investment opportunity is Community Tax Relief (CITR) eligible, meaning that each investor can expect to receive a 5% return on their investment per annum, for 5 years.

In the Q&A below, ART’s chief executive Dr Steve Walker explains how supporting this offer will offer you not only the opportunity to show your support for the community leading to a considerable social return as well as an attractive financial return in the form of a tax relief. 

Q1: What is CITR and what do I get from my investment?

                                                          Photo: Andy King, ART with Elaine Halliwell, Horgan's Sandwich Bar

CITR provides a reduction on the amount of income tax or corporation tax (as applicable) paid in a year by the investor and is spread over a five-year period following an investment. So each investor can expect to receive a real world return on their investment of 5% per annum by taking advantage of Community Investment Tax Relief (CITR). This relief was set up by the government exactly for this purpose, to encourage high net-worth individuals and companies to invest in local businesses, entrepreneurs and social enterprises over the long-term.

For example, if an individual invests £10,000 they should receive a £500 per annum reduction against their income tax liability (a total of £2,500 over the five year period of the investment). This equates to a "return of investment" of 5% per annum, net of taxation.

Also, you get the assurance that you are investing in your local community, in entrepreneurs, in small businesses and in some of the region’s most marginalised people. That’s a huge contribution to make. The social return on this investment is immeasurable. It can count towards your business’s CSR programme, if you wish, or it could be just an example of you ‘giving back’ to the community.

But it is important to stress that this is not a charitable gift. It is a real investment with a financial reward. Investments in this share issue must stand for five years and then are repayable in full. We are a not-for-profit Community Benefit Society, so there are no direct returns on the investments.

Q2: What is the aim of this share offer?

We are looking to raise £500,000 from individual and corporate investors to provide additional capital to support responsible finance to businesses in the West Midlands, with a minimum investment of £500, and the maximum £100,000 per individual/company, with the money invested for a minimum of five years. 

Put simply, the money we raise will be used to lend to businesses from some of the West Midlands most marginalised communities, giving them the financial support they need to develop business ideas, grow businesses and invest in their communities.

Q3: What type of businesses benefit from these funds?

Photo: Joanne McDonnell, Director, Joanne's Florist and Tea Room 

ART's borrowers are diverse in terms of size, activity, their stage of development and the challenges they face. In the past they have ranged from traditional manufacturers to hi-tech digital companies, and from caterers to consultants. What links them all is that the high street banks have turned them down – either fully, or in part – and that’s where we come in. 

But while we take a professional and rigorous approach to lending, we are a social lender first and foremost so we take the attitude that we want to lend to qualifying businesses, rather than looking for excuses not to lend.

This reversal of approach is one small businesses say is our main point of difference. Our borrowers appreciate it: As one recent recipient of an ART loan said: “In spite of having a good financial record, we did not fit the criteria for the banks. ART is less restrictive in its lending assessments and very fair.”

Another said ART was thorough in its investigation but was “prepared to take a calculated risk and support an enterpreneurial approach". 

These sentiments highlight that obtaining access to finance remains a challenge for many, despite the large growth in the alternative business funding sector.

Q4: What was the social impact on the community?

Photo: Cadbury family investors Caroline and Benedict (centre) with ART's Chief Executive Dr Steve Walker (far left) and Chairman Dr Nick Venning DL (far right) 

We like to think that the stats speak for themselves. Just looking at the figures from 2013 to 2018 you can see the difference ART has made. We’ve lent £11.7m and supported 363 businesses during that time – almost all in otherwise deprived/marginalised communities where every job matters. Over that period we have either helped create or safeguard over 2,300 jobs. That has taken a huge amount of pressure off the public sector in the form of benefits, housing costs, etc.

Q5: How do I claim my money back on the investment?

ART will issue a tax certificate to investors which will include their name, address and size of their shareholding in ART. You then submit the tax certificate to HMRC to claim the relief on your self- assessment tax return for each tax year for which relief is due. If you do not normally complete a tax return, you will need to request one from HMRC.

A corporate wishing to claim relief should claim as part of its corporate tax return for each appropriate accounting period. 

The social return from working with ART cannot be underestimated but by using CITR, investors can make sure their money is still working for them while it is working for the wider community.

Find out more about this offer here.

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