No changes or surprises but Kin Capital believe it is a missed opportunity to address some of the Social Investment Tax Relief (‘SITR’) issues impacting investment rates in the sector
The Financial Secretary to the Treasury confirmed in a written statement last week that all the policy areas in the previous finance bill are going to be legislated for, without changes, as soon as possible post summer recess. Policy updates such as the changes to SITR will be backdated to take effect from 6 April 2017.
As a reminder the changes are:
- Increase the amount of investment a social enterprise may receive over its lifetime to £1.5 million, for social enterprises that receive their initial risk finance investment no later than 7 years after their first commercial sale – the current limit of €344,000 over a rolling 3 year period will continue to apply to older social enterprises
- Reduce the limit on full-time equivalent employees to below 250 employees
- Exclude certain activities, including asset leasing and on-lending, to ensure the scheme is well targeted – investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in future
- Exclude the use of money raised under the SITR to pay off existing loans
- Provide that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise
- Introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise
On Advanced Assurance, HMRC have confirmed that until the Finance Bill passes post-recess, they will not look at AA applications for investments over the current size limit (circa. £290k) or where applications would fall foul of the new proposed exclusions in trading activities (e.g., asset leasing) that are likely to be back-dated. This will unfortunately delay some investments.
Some of the issues that the industry were hoping to be addressed included allowing investment into 90% social subsidiaries and not forcing social enterprises to deduct income tax at source. But SITR is due to be reviewed in 2018 and some of these issues as well as some of the EU constraints (e.g. 7 year rule) and other limitations might be amended.
For instance restriction on leasing assets impacts village halls and community centres using SITR to develop community space services. Also on nursing and care homes you can understand why the Treasury do not want SITR to be used for property development but the definition of a care home is very broad and there is the potential (but not intention) that this could capture the types of smaller, niche organisations (e.g. those provide dementia care, children with critical care needs) where SITR could be a valuable source of growth capital.
But Kin welcome the changes and it is good to see the government encouraging the market for SITR to grow. And it is right that some of activities are excluded. And hopefully the remaining wrinkles will be addressed in due course.