Social enterprises and charities gearing up to help combat the impact of Covid-19 and support economic recovery are calling on the government to extend social investment tax relief (SITR) for two years, in order to help them fundraise
SITR was established to encourage individuals to invest into social enterprises and charities, which unlike more commercial businesses, cannot access options such as the enterprise investment scheme (EIS) and the seed enterprise investment scheme (SEIS).
The tax break allows investors to claim 30% income tax relief on share purchases or funding to a project. To date, SITR has leveraged at least £14m in private investment into more than 75 social enterprises.
SITR is set to end in April 2021, but Big Society Capital, which describes itself as the leading financial institution dedicated to UK social impact investment, is spearheading bid to have the relief extended until April 2023.
A letter to the Treasury with 33 signatories from the social enterprise and third sector stated: ‘These two years will also give us the breathing space to consider the replacement of the tax relief with something more ambitious which can turbocharge the levelling up agenda and increase investment into these unique forms of business that have a positive social and environmental impact in their communities.
‘With the appropriate adjustments and with government, social enterprises, investors and experts working together we can develop something even more impactful.
‘But we need time to do this. Given the focus on grappling with Covid-19, we simply do not have enough time to repeal an existing relief and get something new on the books.’
Harvey McGrath, Big Society Capital chair, warned that unless a clause is introduced to the Finance Bill currently going through Parliament, SITR risks being retired next year due to a sunset clause in its legislation.
‘This uncertainty is effectively blocking the flow of capital into social enterprises and charities now, given the deployment timing.
‘The government has an opportunity to end this uncertainty by extending SITR to April 2023.
‘Whilst improvements can certainly be made so SITR is more effective or a replacement developed that is even more ambitious, this will take time.
‘Most financial advisers and wealth managers require a track record of 3-5 years before advising clients on a product and we are just getting there now, with Social Investment Scotland and Resonance laying the foundations for others to follow.
‘So starting from scratch would be a mistake. Fund managers would have to begin again, 3-5 years away from meaningfully engaging wealth managers and financial advisers at large,’ McGrath said.