Social investment needs tax breaks, argues report by lawyers

Written by Stephen Lloyd of Bates Wells & Braithwaite, the report calls for a preferential corporation tax rate and wider social investment tax relief

Stephen Lloyd
Stephen Lloyd

Tax breaks and other legal reforms are needed if the UK social investment market is to continue growing, according to a report by the law firm Bates Wells & Braithwaite.

Ten Reforms to Grow the Social Investment Market, written by Stephen Lloyd, a senior partner at the firm, and Luke Fletcher, a senior associate, calls for a "modest preferential corporation tax rate" for community interest companies and a wider "social investment tax relief", through the modification of the existing community investment tax relief to allow investment outside of deprived communities.

It says that all the reforms it puts forward should be encapsulated in a single piece of legislation.

The report has been submitted to the government’s Red Tape Challenge, which is looking at ways to reduce what the coalition sees as unnecessary regulation.

The report says the rules should be reformed so that charities and social enterprises enjoy the same exemptions as industrial and provident societies, which can raise capital without having to follow complex and expensive rules designed to protect investors.

And it calls for changes in the rules governing investment to make it easier for pension funds and charitable foundations to make social investments, and for the registration of industrial and provident societies to be moved to the CIC regulator at Companies House.

"It is perverse that members of the public are largely free to give donations to charities and civil society organisations but are effectively prevented from supporting the majority of civil society organisations through investment," the report says.

In the introduction to the report, Nick O’Donohoe, chief executive of the social investment wholesaler Big Society Capital, says that regulation needs to keep pace with growth and change in the social investment market.

"Unfortunately, at the moment the legal, regulatory and tax framework predates the notion of social investment and so could do more to incentivise and support investors who are seeking positive social impact alongside financial returns," he says.

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