Changes in the law that allow higher dividends to be paid on shares in community interest companies could prompt them to make use of a tax break designed to encourage investment in small businesses, according to third sector finance experts.
The Enterprise Investment Scheme, which offers investors several tax benefits, including a 20 per cent tax rebate on their investments in small companies, has always been available to CICs limited by shares.
Alastair Irvine, an associate at accountancy firm Baker Tilly, said take-up had been limited by a lack of awareness and practical difficulties.
"This is an effective tool for attracting investors and has got more attractive with recent changes in CIC regulation," he said. "However, there are significant restrictions - it cannot be used by property companies or care home providers, for example."
Nigel Kershaw, chief executive of social investor Big Issue Invest, said the sector could make use of the EIS.
"But for many companies in our sector, share capital is not a good way to raise money," he said. "So we would like the Government to develop a tax relief that works specifically for social investors."