The number of organisations using social investment tax relief fell by a third in 2019/20, according to new figures.
The latest government data shows that in the year to the end of March 2020, 30 social enterprises received investment through SITR totalling £3.3m compared to 45 enterprises raising £4.7m in the previous year.
The scheme offers a 30 per cent tax break to people who invest in charities and social enterprises that meet certain criteria, such as having assets of less than £15m.
Since it was launched in 2014, social enterprises have raised a total of £15.8m through the scheme.
Earlier this year, a group of social finance bodies and others successfully campaigned for the measure to be extended until April 2023.
Andrew O'Brien, director of external affairs at the umbrella body Social Enterprise UK, said the data was not surprising given the uncertainty around the future of the SITR, which he said had put off social enterprises and potential investors.
“This was a point made to the government during the long-delayed consultation on SITR and recently during the debate on the Budget,” he said.
But O'Brien added: “We remain concerned that a two-year extension of the tax relief will not give social enterprises and investors the time they need to plan, fundraise and deploy investment.
“The tax relief needs to get the full backing of the government if it is to succeed, and we cannot expect social enterprises and social investors to commit to using this tax relief when the government doesn’t seem to be able to make its own mind up about SITR’s future.”
Melanie Mills, senior director of social engagement at social investment body Big Society Capital, said that while the average deal size had decreased, it was encouraging that advance assurance applications had remained consistent.
She noted that between in 2019/20 and 2020/21, 77 per cent of applications for the larger Enterprise Investment Scheme were approved.
“We need to think about the background under which the tax relief is being operated,” she said.
“The government announced a call for evidence for SITR in 2019, but because of Brexit, then the election, then the pandemic, we didn’t have feedback on the evidence it’d collected until the budget.”
Mills expected investor confidence to be damaged, since no one knew whether the scheme would be continued.
But SITR remained a complicated scheme, she said, and the lower rate of acceptance for SITR compared with EIS spoke to some of the former’s complexities.
“Also, there are a number of trading activities that are part of how social enterprises make themselves sustainable; a change in regulations in 2017 excluded some of these activities,” Mills said. “This can be challenging for social enterprises who want to use tax relief to meet all the eligibility clauses.
“We’ll be working hard to ensure there’s a replacement tax relief that ensures continuity after April 2023 that works even better for investors and investees. We have two years to make sure all organisations that want to use SITR can.”