Reforms to social investment tax reliefs finalised by HMRC

A policy paper from HM Revenue & Customs says it will extend the list of excluded activities but increase the amount some social enterprises can claim


Social investment tax relief reforms that will increase the amount that some social enterprises can raise through from the reliefs have been finalised, according to a policy paper released by HM Revenue & Customs last week.

SITR allows investors who put money into regulated social organisations, including charities, to claim back part of their investment against their tax bills.

In the Autumn Statement last year, the government said that social enterprises less than seven years old would be able to claim a lifetime total of £1.5m through SITR.

Previously, all social enterprises were able to claim the equivalent of €340,000 (about £290,000) every three years through SITR, and the old limits on SITR will still apply to all qualifying social enterprises more than seven years old.

The new policy paper also extends the list of excluded activities to include all energy generation activities, asset leasing, organisations providing banking, insurance, money lending or other financial services to social enterprises, and operating or managing nursing homes or residential care homes.

But the policy paper also says the government intends to introduce an accreditation scheme to allow SITR investment in affordable nursing and residential care homes.

The policy paper confirms that the maximum number of full-time equivalent employees allowed at a qualifying social enterprise will fall from 500 to 250.

The reforms will bring in approximately £10m in 2017/18 and £5m in both 2018/19 and 2019/20, before eventually costing the Treasury £5m in 2021/22, the policy paper says. It also confirms that the new SITR rules will cost HMRC about £1.5m in IT changes and administration.

The changes, which are included in amendments to the Income Tax Act 2007, will apply to investments made on or after 6 April. The government says it is considering having a review of the changes before 6 April 2019.

Camilla Parke, strategy and market development associate at Big Society Capital, welcomed the "modest" changes to SITR, but said: "There are, however, amendments that have raised concern among the sector. One of these is the new exclusion of asset leasing as an SITR-eligible trading activity. We would welcome further clarity and reassurance from government that this will not prevent eligible charities and social enterprises from using SITR to support the delivery of important community facilities, for example, sports grounds or community centres that rely on the use of assets to generate vital revenue streams."

Peter Holbrook, chief executive of Social Enterprise UK, said: "Access to appropriate finance remains one of the key barriers to sustainability for social enterprises. As such, SEUK welcomes the raising of the limits on the SITR as one tool to help our members and the wider movement grow and develop.

"However, we remain concerned at the blanket exclusion of all community energy, and the extension of that exclusion to include asset leasing. The latter has the potential to have a detrimental effect on community land trusts and community pubs particularly, and we would welcome dialogue with government to ensure that it does not have unintended consequences."

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