Thirty-three organisations including Big Issue Invest, Big Society Capital, Triodos Bank and the Impact Investing Institute have written to MP Jesse Norman to ask for an extension of the Social Investment Tax Relief (SITR) by an additional two years to April 2023.
SITR was introduced to help social enterprises and charities raise funds by allowing individuals to invest tax efficiently. If you make a qualifying investment in a social enterprise, including a charity, Social Investment Tax Relief (SITR) can:
- give you a reduction of 30% of that investment in your income tax bill for that year
- let you defer a Capital Gains Tax charge if you reinvest the profits into a social enterprise
- after 3 years, let you sell or give away SITR-qualifying investments that have gained in value without paying Capital Gains Tax.
The maximum investment you can claim relief on is £1m.
The letter, which was sent to MP Jesse Norman, Financial Secretary to the Treasury reads: ‘The country is going through turbulent times and we need plan for how we rebuild our economy following this national emergency. We should aim not only to get back up and running as quickly as possible but to deliver the government’s ambition of levelling up the country. We must use the coming weeks to develop a plan to spread growth across all our regions and particularly those areas that have been left behind in previous recoveries.
A key part of that plan must be encouraging capital to invest into businesses and organisations which are working in some of our toughest markets and communities.’
The organisations argue that a short extension of the Social Investment Tax Relief is critical in that it will enable them to continue channelling capital into social enterprises and charities which it suggests will be first responders to the Covid-19 economic recovery. The extra two years will also give them the breathing space to consider the replacement of the tax relief with something more ambitious it says can turbocharge the levelling up agenda and increase investment into these business that have a positive social and environmental impact in their communities.
The letter continues: ‘With the appropriate adjustments and with government, social enterprises, investors and experts working together we can develop something even more impactful. But we need time to do this. Given the focus on grappling with COVID-19, we simply do not have enough time to repeal an existing relief and get something new on the books. The review of SITR that commenced in April 2019 has not even been published yet.
‘Removing the tax relief during this period of economic uncertainty will send the wrong signals to the market and will put at risk capital that has already been committed to investing into social enterprises, charities and voluntary organisations.
The UK Government has spent considerable time and effort in encouraging the development of a market for social investment into our social enterprises and poorest communities. We must not throw away the gains that have been made by letting this relief fall away without replacement. We also cannot afford to take away a tool for social enterprises and communities to raise investment following the impact of Covid-19.’
Jackie Hall, tax partner at accountants RSM argues that in these uncertain times, where social enterprises have been hit hard by shortfalls in income, there is a strong argument for reforming Social Investment Tax Relief (SITR) rather than losing it altogether. The government is simply adding to the uncertainty by appearing to not tackle the issue in good time.
Hall says that while the relief sounds attractive statistics show that take-up is far short of the amount anticipated by the government when it was first introduced in 2014, with only £14m of investment having been raised which amounts to less than 20% of the forecasted £80m.
“Part of the reason may well be the relatively short investment history,” says Hall, “Unlike charitable donors who are making gifts with no anticipation of receiving anything back, investors attracted to SITR tend to be looking for a return, or a longer-term investment extending beyond the tax relief. They could instead receive similar relief on an investment in qualifying Enterprise Investment Scheme (EIS) shares for example. So, the SITR alternative can be a tricky sell for financial advisers. In some respects, the investment history is just making an impact when we are only months away from losing the relief.”
Some argue that the relief was never fit for purpose, is not attractive to investors and has been unsuccessful, whilst others campaign for its extension. Meanwhile, due to a sunset clause in the legislation, SITR will come to an end in April 2021 unless action is taken to amend it.
“In April 2019 the government issued a call for evidence on the relief, but the results still haven’t been published, which is itself a concern and is doing nothing to alleviate the uncertainty and concerns for social enterprises who have come to rely upon this type of funding.”
Cliff Prior, CEO of Big Society Capital, said, in response to that call for evidence had written: ‘Social enterprises and charities are a key part of the social fabric of the UK, helping people in disadvantage in every town and city in the country. We believe that SITR has the potential to bring about great change in our society by helping organisations get the investment they need to tackle some of our most pressing issues. It fills a critical gap in financing for them and has already raised over £11.6 million to grow their impact. Importantly, SITR also enables more people to invest in line with their values, often within their own community.
‘In order for the full potential of the tax relief to be achieved, it’s crucial that the Government makes the necessary changes to expand both the reach of SITR and its ease of use. We believe the current model is based too closely on other, more commercial tax reliefs, such as the Enterprise Investment Scheme. The key difference is the need not only to support start-ups, but to level the playing field, as social enterprises and charities find it harder to access finance than their commercial counterparts.
‘SITR presents another chance for the UK to be a world leader in the social impact investment space, a world leader in investing for good and improving lives and communities. We look forward to working with the Government and the industry to develop a version of SITR that can help more social enterprises and charities achieve greater levels of positive social impact.’
Hall agrees arguing: “In these uncertain times, where social enterprises have been hit hard by shortfalls in income, there is a strong argument for reforming this relief rather than losing it altogether. There is no doubt that the government is simply adding to the uncertainty by appearing to not tackle the issue in good time.”
Further reading: Donating to charity and what the tax benefits can be
This article first appeared on Tax Guide’s sister website What Investment.