Guidance

Use the social investment tax relief (SITR) scheme to raise money for your company

Find out if your charity or social enterprise’s proposal to raise money meets the conditions of SITR and how to apply.

The social investment tax relief (SITR) scheme is one of 4 venture capital schemes - check which is appropriate for you.

How the scheme works

SITR is designed to help you raise money to support the trading activity of your social enterprise or charity. It does this by offering your investors tax relief on their investment if the qualifying conditions are met.

Tax reliefs will be withheld or withdrawn from your investors if you do not follow the rules for at least 3 years after the investment is made.

Companies that can use the scheme

You can apply if you’re:

You must have fewer than 500 full time equivalent employees at the time the investment is made and cannot:

  • be controlled by another company
  • have more than £15 million in gross assets immediately before the investment is made
  • be quoted on a recognised stock exchange
  • be in a partnership
  • control another company that is not a qualifying subsidiary

You can have subsidiaries but you must hold more than 50% of the ordinary share capital in each subsidiary.

Find out more about setting up a social enterprise.

About the investment

You must be raising money for a qualifying business activity and your investors must buy new shares. Any money they lend you as a debt investment must also be new.

The maximum amount of investment you can get through SITR is €344,827 (about £250,000) over 3 years, this:

  • includes any other de minimis state aid received in the 3 years up to and including the date of the investment
  • will also count towards any limits for later investments through other venture capital schemes

You cannot guarantee your investors will get their money back before other shareholders or lenders, if your social enterprise fails.

Shares

Any shares you sell:

  • must be new shares
  • must be paid for in full, and in cash, at the time the investment is made
  • must not be preferential shares

Debt investment

The amount you’re lent:

  • must be for a new debt investment or loan
  • must be made in cash, in a single or several payments
  • must not be secured on any assets

Any interest you pay on the loan must not be more than a reasonable commercial interest rate and the capital cannot be repaid during the qualifying period.

How to use the investment

All money raised from the investment must be used within 28 months of the date of the investment.

You, or your 90% social subsidiary, must use the money raised by the investment for either:

  • carrying on the qualifying trade
  • preparing to carry on the trade within 2 years of the date of the investment

Any money you use to buy shares or stocks in a company is not a qualifying activity.

Qualifying subsidiary companies

If your company owns subsidiaries they need to be ‘qualifying subsidiaries’. This means:

  • your company must own more than 50% of the subsidiary’s shares
  • no one other than your company or one of its other qualifying subsidiaries can control this subsidiary
  • there must be no arrangements which would put someone else in control of this subsidiary

The subsidiary must be at least 90% owned by your company where either the:

  • business activity you’re going to spend the investment on is to be carried out by the qualifying subsidiary
  • subsidiary’s business is mainly property or land management

Qualifying business activity

Most trades qualify but you must be trading commercially and trying to make a profit. You do not need to be trading in the UK.

Your company may not qualify if most of your trade includes things like:

  • dealing in land
  • banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities unless lending money to another social enterprise
  • property development
  • fishery products
  • agricultural products
  • generating or exporting electricity
  • road freight transport for hire
  • providing services to another person where that person’s trade substantially consists of excluded activities, and the person controlling that trade also controls the company providing the services

Before raising your money

You can ask HMRC to check if your investment is likely to qualify before you go ahead. This is called advance assurance.

How to apply

When you’ve issued your shares, you must send a compliance statement to HMRC.

Email HMRC to ask for this form in Welsh (Cymraeg).

If you’ve got advance assurance, provide copies of any documents that have changed since HMRC gave you advance assurance.

If you’ve not got advance assurance, you must provide the following information for your social enterprise and any of its subsidiaries:

  • the business plan and financial forecasts
  • a copy of the latest accounts
  • the loan agreement or debt instrument, if the investment is through qualifying debt
  • an up to date copy of the memorandum and articles of association or the rules of your social enterprise
  • an explanation of how you meet the risk to capital condition
  • details of all trading and activities to be carried out, and how much you expect to spend on each activity
  • the information memorandum prospectus or other documents used to explain the fundraising proposal to your investors
  • details of any other agreements between the social enterprise and the investors
  • a list of the amounts, dates and venture capital schemes under which you’ve previously received investment
  • any other documents to show you meet the qualifying conditions

You can only submit your compliance statement when you’ve carried out your qualifying business activity for 4 months. You must submit it within 2 years of this date, or within 2 years of the end of the tax year in which the shares were issued (whichever is later).

You must complete a separate application for each share or debt issue.

Send your application

You can email or post your compliance statement and supporting documents.

Email: enterprise.centre@hmrc.gsi.gov.uk.

Post:

Venture Capital Reliefs Team
WMBC
HM Revenue and Customs
BX9 1BN

You must complete a separate application for each share issue or debt investment.

What happens next

If your application is successful, HMRC will send you a letter and compliance certificates (form SITR3) to give to your investors. You must include this on the compliance certificates you give to your investors. Investors need the compliance certificate and reference number to be able to claim tax relief.

Where HMRC decides the investments do not meet SITR requirements, we’ll write to you explaining why. If you disagree, you can ask HMRC to review the decision, or appeal against it.

Reporting changes

You must tell HMRC if your social enterprise stops meeting the conditions of the scheme within 60 days. If you do not tell HMRC in time, you could be charged a penalty.

If you do not use the money within 28 months of the investment, HMRC will withdraw some or all of your investor’s tax relief.

Published 16 June 2017
Last updated 12 October 2018 + show all updates
  1. The new SITR compliance statement and information on the unique investment reference has been added.
  2. First published.