In a similar way to the reliefs under the Enterprise Investment Scheme (EIS):
Unlike EIS, the relief extends to include accredited social impact bonds and debt instruments, giving the investor a greater selection of possible investment options and opportunities.
Broadly, a social enterprise is a business with primarily social objectives whose surpluses are reinvested for the purpose of the business or in the community, rather than being driven by the need to maximise profits for shareholders or owners.
Not all social enterprises qualify for relief. For the purpose of SITR, a social enterprise is defined as:
There are various other criteria that need to be satisfied in order to benefit from the relief, relating to the type of investment, the type of investor, and the need to obtain approval from HMRC.
These conditions include a limit on the size of the social enterprise, so that only businesses with up to 500 employees and gross assets of no more than £15 million before the investment can benefit, along with a need for the organisation to invest the money raised within a 28 month period. In addition, the amount of investment a qualifying SITR can raise is €344,000 over a three year rolling limit (the sterling equivalent is based on the spot exchange rate on the investment date).
On the investor side, the individual cannot be ‘connected’ to the social enterprise, meaning that the investor should not be closely affiliated to the business itself.
Where all of the conditions are satisfied, SITR is potentially available. Advance assurance can be obtained from HMRC to enable the social enterprise to go to investors with confidence that their investment will be able to benefit from the relief.
The following changes to the relief were proposed in the 2017 Finance Bill to take effect from 6 April 2017:
However, all of these proposals were postponed shortly before the Bill was placed before Parliament, to speed up approval of the Bill before Parliament recessed prior to the General Election. It is expected that the proposals will be re-introduced in a future Finance Bill.
We have seen a great deal of interest in SITR as investors look for opportunities to support communities and good causes that are close to their home and hearts.
We can help both investors and social enterprises apply for the relief, and take the business through HMRC's advance assurance process.
Please contact your usual advisor to discuss the opportunities available for social enterprises to raise funds and obtain additional support through various schemes.