Treasury probes value of social investment tax relief

The Treasury has published a call for evidence on the social investment tax relief (SITR), in a bid to understand the impact of the scheme which has been substantially under-used and is currently due to end in two years’ time

Introduced in 2014, and then enlarged in 2017, the SITR has a sunset clause which will bring the scheme to an end in April 2021, and the call for evidence will help inform a decision about the future of the relief.

The Treasury says only a limited number of social enterprises have made use of the tax relief, and take up has fallen short of what was anticipated when SITR was introduced and subsequently expanded.

Its aim was to kickstart the market for social investment by encouraging individuals to support social enterprises and certain charities, and helping these enterprises access new sources of finance.

Costings published at Budget 2014 assumed the relief would cost £10m in 2015-16, rising to £35m in 2018-19.

However, official statistics published for the first three years of the scheme, from its introduction in 2014 to the end of the tax year 2016-17, indicate that around 50 social enterprises have raised £5.1m of investment through SITR. Even if income tax relief was claimed on all the investments, the cost of the scheme in those three years would be less than £2m in total.

The Treasury says the proportion of enterprises that seek advance assurance (AA) from HMRC to check their eligibility for SITR is lower than for other, similar, commercial schemes.

It suggests there may still some misunderstanding by social enterprises of the scheme’s purpose. Many social enterprises, including charities that are not carrying on a trade, have sought to use the money for non-trading activities. Some fund managers had planned to use the scheme for offering low-risk financial products, but were unable to carry through their plans when changes were introduced to the scheme in 2017.

The call for evidence seeks views on how SITR has been used since its introduction, and why its use has been lower than previously anticipated. In addition to views from SITR investors and investees, this review also seeks the views of social enterprises who could have used SITR, but have not, and those who want to use the scheme but cannot. It is also intended to gather views from social enterprises on their experiences with scaling up, and what impact SITR has had on access to finance for social enterprises.

The call for evidence closes on 17 July.

HMRC Social Investment Tax Relief: call for evidence

Pat Sweet

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