Closed consultation

Social Investment Tax Relief for ‘Spot Purchase’ Social Impact Bonds

Published 9 November 2015

1. Introduction

1.1 Background

Social Impact Bonds (SIBs) are a new tool that unlock private finance and public investment so that organisations which are best placed to tackle social problems can do so on a payment-by-results basis.

Companies set up to deliver a Social Impact Bond contract (‘Social Impact Contractors’) are currently eligible for investment attracting Social Investment Tax Relief (SITR), where they have been accredited by a Cabinet Office-run accreditation process. In order to qualify, the Social Impact Contractor must be a special purpose vehicle (SPV) set up solely for the purpose of delivering the SIB contract.

The accreditation process is governed by:

• sections 257JE and 257JF of the Income Tax Act 2007
• the Tax Relief for Social Investments (Accreditation of Social Impact Contractor) Regulations 2014;
• Cabinet Office guidance concerning the accreditation of social impact contractors.

1.2 Aim of the consultation

In a spot purchase SIB, a social impact contractor will, over time, enter into any number of SIB contracts in substantially the same form with different contracting authorities. All the contracts will commit the social impact contractor to deliver the same outcome(s) for a set price. This means that contracting authorities are able to ‘buy’ outcomes for as few as one beneficiary. The government has already committed to ensure that spot purchase SIB structures are eligible for SITR.

Annex A and Annex B of this paper set out draft changes to the SIB accreditation process that are intended to make it easier for social impact contractors to gain and maintain accreditation where they adopt spot purchase structures. The government is interested to hear views on whether the proposed changes will be effective and achieve this outcome.

2. Proposed changes

As they are currently written, the 2014 Regulations and the Cabinet Office guidance for the accreditation of social impact contractors suggest that a social impact contractor delivering a spot-purchase SIB would need to seek accreditation for each separate contract it enters into with different contracting authorities. This would place a significant burden on the social impact contractor and may deter investors.

Cabinet Office and HMRC consider that, by making minor amendments to the 2014 Regulations and providing more specific information in the Guidance, it is possible for a social impact contractor to gain accreditation for the first spot purchase SIB called off from a particular framework, and then maintain accreditation (and hence eligibility for SITR) by entering into follow-on spot purchase contracts in essentially the same form, without the social impact contractor having to apply for accreditation/reaccreditation in respect of each separate contract.

This is achieved by the Minister for the Cabinet Office looking at the first call-off contract under a particular framework agreement, to assess whether the relevant social impact contractor can be accredited. If the Minister finds the criteria to be met for that particular contract then he may:

• set the duration of accreditation by reference to (or by specifying a date expected to coincide with) the end of the term of the last call off contract expected to be made under the relevant framework agreement; and
• specify, as a condition of accreditation, that the social impact contractor must, throughout the period of accreditation, be party to one or more contracts with contracting authorities in materially identical terms (so far as relevant to the criteria for accreditation) to the first call off contract (the “no gaps condition”).

During the specified period of accreditation as long as the no gaps condition, and all other conditions of accreditation, are met then the social impact contractor will remain an accredited social impact contractor. In other words, it will not be necessary for the social impact contractor to re-apply for accreditation in respect of each new call off contract that it enters into.

In this way, the social impact contractor would maintain its accreditation on a rolling basis: it would continue to be an accredited social impact contractor as long as it had no gaps between any of its call off contracts (assuming all other conditions of accreditation remain met).

Questions

1. Do you have any comments on the proposed changes to the Regulations and Guidance set out in Annex A and Annex B?
2. Do you agree that these changes will effectively ensure ‘spot purchase’ SIB structures qualify for SITR?

3. Responding to the consultation

The government would welcome responses on its proposals. Please email comments by 25 November 2015 to the Centre for Social Impact Bonds.

Annex A: Proposed regulation to amend the Tax Relief for Social Investments (Accreditation of Social Impact Contractor) Regulations 2014

Annex B: Proposed revised guidance concerning the accreditation of social impact contractors