The government must widen the scope of a proposed social investment tax relief, Big Society Capital has said in its response to a joint consultation by the Treasury and the Department for Business, Innovation & Skills.
The consultation, which closes next Friday, proposes that individual investors be allowed to make social investment tax relief investments of up to £1m a year in regulated social sector organisations – charities, community benefit societies and community interest companies. Investors will be able to claim back up to 30 per cent of their investment against their income tax or capital gains tax liabilities.
BSC said it approved of the basic structure of the tax relief proposed by government, but that it wanted several changes to make it work more effectively.
Its response said that the government should allow unsecured loans to qualify for the tax relief. The current proposals say loans would qualify only where there is a specific link between the return on the investment and the success of the organisation.
The BSC response also proposes that investee organisations should be eligible for up to £5m a year of investment. The current proposals say that if an organisation was able to receive investments of more than €200,000 (£171,000) over three years, the relief would have to receive state aid approval from the European Union, which would delay the introduction of the relief.
BSC also proposes introducing a new structure to the scheme, modelled on an existing relief for equity investors in companies limited by shares, called the venture capital trust, which will appeal to investors with less capital.
And it proposes allowing investment in social impact bonds, which do not currently use community interest companies, community benefit societies or charity legal structures. It said this could be done either by reforming community interest company rules to allow social impact bonds to operate as community interest companies, or creating a registration scheme that would allow non-regulated structures to qualify for social investment tax relief on a one-off basis.
Nick O’Donohoe, chief executive of Big Society Capital, said in a statement accompanying the response: "The government’s commitment to establishing a social investment tax relief is a timely initiative with the potential to transform the social investment market.
"However, getting the terms of the tax relief right will be essential and there are some critical issues that still need to be addressed if it is to be effective."