Sean Egan shares some good news – another form of tax relief that will benefit charities and social enterprises.
JR P (CC BY-NC 2.0)
As organisations start planning for the arrival of the theatre tax relief (see my article in AP273), many organisations are still unaware of the potential benefits of another form of tax relief: the social investment tax relief (SITR). It has been in development for some years and applies to all social enterprises, which are currently defined to include all charities and community interest companies. It will be part of the Finance Act, due to be enacted in July and will apply to qualifying investments made since April of this year. The principles are clear though some details will need to be refined.
SITR is an important plank in the government’s policy to stimulate social enterprise. It applies where a social enterprise raises qualifying loans which are made for a commercial purpose. The tax relief benefits the investor and not the organisation – the intention is to incentivise social enterprises to seek this sort of investment and become more financially resilient and less dependent on government support.
The intention is to incentivise social enterprises to seek this sort of investment and become more financially resilient
SITR is based on similar principles to enterprise investment schemes and seed enterprise investment schemes (EIS/SEIS), in that to qualify the investments must be held for three years. The crucial differences are that EIS/SEIS both require the investment to be in shares and the rules are much more complex. As a result, there has been a very limited take-up of EIS/SEIS in the arts although they have become a staple structure for low-budget film financing (combined with the film tax relief).
SITR will be less complex in that a loan instrument is all that is needed in order to qualify – subject to other conditions. The relief is 30% of the investment and the maximum amount an organisation can receive in any three-year period is about £290k. The 30% relief is the same as the relief for EIS, and actually better for the investor than gift aid on donations where the tax relief is the higher rate tax element. For donations the organisation can claim the basic rate tax element.
Here are some examples of possible SITR investments:
- A venue wants to refurbish its café/bar and seeks investment to do so. Investors will receive a share of the proceeds of the café/bar proceeds or profits.
- An organisation has the opportunity to transfer a show commercially. Investors can qualify for SITR and receive recoupment and profits on a usual ‘angel investment’ basis.
- An arts organisation sets up a new writing development fund. The charity pays into the fund when it green lights a project allowing the investor the potential for a return. This could be combined advantageously with the theatre tax relief.
Each investment will need to be considered to ensure that the charity (or social enterprise) has the ability to enter into the investment and maximise the benefit.
The crucial question is whether arts organisations have supporters who are willing to invest in them and for whom SITR would be an incentive to do so. Arts organisations will naturally be wary of offering investments to individuals who might otherwise donate and so will need to distinguish the different ‘offers’ to their supporters.
Sean Egan is a business affairs consultant.
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