More Tax Relief On The Way For Social Investments

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Written By Hasan Rezazadeh

Community-minded investors will have the chance to plough more cash into social enterprise projects as investment limits are raised from April.

A policy paper from HM Revenue and Customs (HMRC) released alongside draft legislation ups Social Investment Tax Relief (SITR) from £250,000 over three years to £1.5 million.

In return for tying money in the scheme, investors gain a 30% refund on income tax paid.

The new rules mean tax relief rises from a maximum £75,000 to £450,000.

Qualifying rules for social enterprises are also changing.

The requirement to have fewer than 500 employees drops to 250 excluding volunteers.

SITR rule changes

Allowed activities will be updated to exclude some low-risk sectors and an accreditation system bringing affordable nursing and residential care homes into SITR will be introduced.

The dropped activities include energy generation, leasing, financial services and some care home operation.

“This measure will increase the amount of money a qualifying social enterprise can raise from individuals under SITR. Many social enterprises currently have difficulty raising capital from investors and commercial lenders,” said an HMRC spokesman.

“Increasing the investment limit to £1.5 million will allow social enterprises to raise more investment through SITR, making it attractive to a wider range of enterprises and investors. Excluding lower risk activities will ensure the scheme is well targeted and delivers value for money.”

The policy is expected to increase the amount of money available for social enterprise investment although some organisations will no longer qualify for SITR, added the spokesman.

Excluded schemes

“Some social enterprises that qualified under the current scheme will no longer qualify for SITR because of changes to the list of excluded activities and reduction in the maximum number of full time equivalent employees,” said the spokesman.

“A small number of older social enterprises that would otherwise have been excluded from receiving investments under the enlarged SITR will continue to be able to access investments under the amended de minimis scheme.”

SITR is one of several tax incentive investment schemes promoted by the government. The others include Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).

SEIS, EIS and VCTs offer tax relief and other incentives for investing in start-up and growing businesses.