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This publication is available at https://www.gov.uk/government/publications/income-tax-enlarging-social-investment-tax-relief/income-tax-enlarging-social-investment-tax-relief
Who is likely to be affected
Social enterprises, individuals who invest in social enterprises, Social Investment Tax Relief (SITR) fund managers.
General description of the measure
This measure enlarges the SITR scheme and makes a number of changes to the existing rules:
- the amount of qualifying investment a qualifying social enterprise can raise will increase in most cases, from the current 3 year rolling limit of €344,000 to a maximum of £1.5 million over its lifetime
- the increased investment limit will be available to qualifying social enterprises up to 7 years after their first commercial sale - older social enterprises will continue to be able to raise investments up to the limits of the current de minimis state aid scheme
- the maximum number of full time equivalent employees of a qualifying social enterprise will be reduced from 500 to 250 - volunteers don’t count towards this limit
- the excluded activities list will be updated to exclude a number of low risk activities from the SITR
- the measure makes a number of other changes to ensure the new scheme is properly targeted and meets EU rules under the General Block Exemption Regulation
The government intends to introduce an accreditation system to allow SITR investment in affordable nursing and residential care homes.
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.
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.
This measure is designed to align with EU state aid rules.
Background to the measure
SITR was introduced as a de minimis state aid scheme with effect from 6 April 2014.
The government announced at Autumn Statement 2014 that it would increase the investment limit, subject to EU approval.
The government announced at Autumn Statement 2015 that all energy generation activities would be excluded from SITR upon its enlargement.
The changes will apply to qualifying investments made on or after 6 April 2017.
Current law for the SITR is contained in Part 5B of Income Tax Act 2007.
Legislation will be introduced in Finance Bill 2017 to introduce an enlarged SITR scheme. The scheme will be based on the current SITR scheme subject to the following changes:
- the amount of investment a social enterprise may receive under the SITR over its lifetime will be increased to £1.5 million
- social enterprises must raise their first investment under the SITR or other risk finance investment (including the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) or Venture Capital Trusts) no later than 7 years after making their first commercial sale
- individuals will not be eligible to invest in a social enterprise under the SITR unless any other investments made by the individual in the social enterprise, including loans, were made under the SITR or other risk finance investment
- social enterprises will not be able to use money raised under the SITR to replace an existing loan
- the maximum number of full time equivalent employees a qualifying social enterprise may have will be reduced to fewer than 250 employees
- the list of excluded activities will be extended to exclude:
- all energy generation activities
- leasing (including letting ships on charter or other assets on hire)
- providing banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial services to social enterprises
- operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
- anti-abuse provisions similar to the disqualifying arrangements requirements in the EIS and SEIS rules will introduced
- provision will be made to introduce an accredited scheme for affordable social care through regulations at a later date
The rules for the de minimis SITR scheme will be amended to reflect all the above changes, other than the requirement for the first risk finance investment to be received no later than 7 years after the first commercial sale. This means that older social enterprises that would otherwise meet the rules of the enlarged scheme will be able to receive investments of up to €344,000 over a 3 year rolling period.
Summary of impacts
Exchequer impact (£m)
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These figures are set out in Table 2.1 of Autumn Statement 2016 and have been certified by the Office for Budgetary Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2016.
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
Most individual investors will be able to invest more money in particular social enterprises if they wish. The measure isn’t expected to impact on family formation, stability or breakdown.
After consideration, the government has concluded that there are no significant impacts on groups of people sharing protected characteristics, and hasn’t identified any equalities impacts.
Impact on business including civil society organisations
The measure is expected to increase the amount of investment available to social enterprises seeking finance.
Some social enterprises that qualified under the current scheme will no longer qualify for SITR as a result of changes to the list of excluded activities and reduction in the maximum number of full time equivalent employees. 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.
The overall administrative burden is expected to be negligible. Eligible social enterprises may face some one off costs to familiarise themselves with the new legislation, processes and requirements and ongoing administrative costs in order to qualify for this relief.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
It’s estimated that the cost to HMRC of implementing these changes will be in the region of £1.5 million both in terms of IT changes and administration.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
Consideration will be given to conducting a review within 2 years of the introduction of these changes.
If you have any questions about this change, please contact Martin Trott on Telephone: 03000 585619 or email: firstname.lastname@example.org
Jane Ellison MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.