Social investment tax relief was introduced in 2014 to encourage people to support charities and social enterprises by helping them to access new sources of finance.
The finance provided will typically be in the form of share capital or unsecured loans repayable after three years. Since April 2014, any registered charity, community interest company or community benefit scheme with fewer than 500 employees and gross assets of no more than £15m can use SITR to raise funds for various projects from people with a social conscience but also – and more importantly – from high net-worth people who are attracted by the 30 per cent income tax relief. It was billed as the first scheme of its kind in the world to incentivise social investment through the personal tax system.
Despite the appeal for both charities and investors, there has been a disappointing take-up so far. It is thought that, by the end of 2015, fewer than 15 investments had clearance, with just over £500,000 invested in qualifying businesses. This year is more promising, with more than 50 outstanding applications for SITR eligibility pending.
It is fair to say that charities are not traditionally big innovators and are clearly risk-averse, particularly when it comes to new ways of raising finance. Many will therefore shy away from new funding streams in the early-adopter phase.
However, the biggest stumbling block so far has been the EU’s cap on the amount that charities can receive. Under EU rules governing the initial introduction of SITR, individual enterprises can receive a government-subsidised investment of up to €344,827 (approximately £250,000) over three years; certainly not enough to revolutionise the way in which UK charities can top up their income.
In his Autumn Statement of 2014, the Chancellor George Osborne announced that the government would be seeking approval from the EU to increase this figure to £5m per organisation per year. However, approval has not yet been granted, no further announcements have been made and the limit remains at €344,827 over three years. Unless this limit is increased, I find it hard to see how SITR can make inroads for charities and unlock what some experts believe is a £480m investment opportunity over the next five years.
There is certainly evidence to suggest that the government is trying to encourage take-up of the scheme. Big Society Capital, the independent social investment institution, has launched a free package of support to help organisations use SITR, as well as a website to help improve access to information for charities and social enterprises.
But is it enough? Does the current limit of €344,827 over three years justify some of the UK’s larger charities targeting SITR as a revenue stream when other, more traditional funding sources are perhaps easier, quicker and cheaper to pursue? Not forgetting of course, that turnover and employee limits will mean the largest charities are excluded from this scheme anyway.
George Osborne has played his card and seems to agree that the SITR investment limits needs raising to boost participation from charities and obtain wider coverage. For now, at least, it remains a case of "watch this space".
Nigel Shaw is a partner at the accountancy firm Garbutt + Elliott