What sets social enterprises apart from charities and limited companies is their focus on profit with a social impact. This more conscious approach to business can attract investors looking to support a cause close to their heart, albeit with a commercial gain.
Social enterprises are set up as Community Interest Company (CIC). A CIC is a special form of limited company with an ‘asset lock’ – an agreement to use assets only for social objectives and has limits on shareholder payments. As such, to help encourage investment, HMRC have a separate scheme – The Social Investment Tax Relief (SITR).
Social Investment Tax Relief (SITR)
Having some similarities to the SEIS and EIS schemes, the major difference is that SITR allows for debt investment. The key features of this tax relief are:
- 30% tax relief for investors
- Maximum amount that can be raised is €344,827 or close to £250k*
- Investment must be for 3 years
- Investment must be spent within 28 months of the date of investment
- The social enterprise cannot be controlled by another company
- The company must not have more than £15 million in assets before the investment
- If the company owns subsidiaries these also have to be qualifying
Are you eligible?
As with EIS and SEIS, you can apply for advance assurance with HMRC to make sure you are eligible, as long as you have a named potential investor or an undertaking that an agent is seeking investment for you.
As with EIS and SEIS there are no capital gains tax charges for any profits made from this type of investment. You can also defer capital gains tax liabilities if you invest your gains in qualifying social investment.
*You might be wondering why Euros are being quoted; until Brexit is completed the scheme comes under rules regarding state aid to charities and social enterprises. Therefore, whatever the exchange rate will be at investment the Stirling figure can change.