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Social Investment Tax Relief: FAQs

Find the answers to the most frequently asked questions on Social Investment Tax Relief in our SITR FAQs.

Questions are organised under the following issues:


Eligible company structures

 

Can any type of social enterprise or charity use SITR to raise investment?

Unfortunately not. The tax relief applies to charities and ‘regulated social enterprises’.

During the whole of the qualifying period for the investment (that is, not only at the point when the investment was made), the social enterprise must be 1 or more of the following:

  • a community interest company
  • a community benefit society, with an asset lock
  • a charity - which can be a company or a trust
  • An accredited social impact contractor

For more information, see:

 

What are the rules around ownership if a subsidiary wanted to raise SITR or if my organisation has a stake in another company?

Will this affect any SITR application?

SITR rules and subsidiaries will need to be explored fully before progressing any SITR plans.

For a subsidiary to be a 90% social subsidiary, the following must apply:

  • the subsidiary must be a social enterprise
  • the parent enterprise must own at least 90% of the subsidiary's issued share capital and voting rights
  • the parent enterprise must be beneficially entitled to at least 90% of the assets available for distribution
  • to equity holders of the subsidiary
  • the parent enterprise must be beneficially entitled to at least 90% of any profits of the subsidiary which
  • would be available for distribution to equity holders (Equity holder has the same meaning as in CTM81010 - Groups & consortia: groups - entitlement to profits or assets available for distribution: definitions of
  • terminology
  • no person, other than the parent enterprise must have control of the subsidiary
  • There must be no arrangements that would mean any of the above conditions would stop being met A company is still a 90% social subsidiary if it is held indirectly by a company that is a qualifying 100% subsidiary of the company.

For more information, see:


Qualifying trading activities

Are there any activities which SITR can’t be used for?

Yes there are some activities for which SITR is not applicable.

To be a qualifying trade, the service or product must be run commercially and with a view to making a profit. The trade doesn't have to be carried on in the UK to qualify. Most trades qualify. But a trade doesn't qualify if it consists wholly, or substantially, of excluded activities. HMRC won't normally view activities as 'substantial' unless they amount to more than 20% of the trade.

Excluded trading activities include:

  • leasing activities
  • letting ships on charter
  • receiving royalties or license fees
  • dealing in financial instruments like commodities, futures, shares and securities
  • dealing in land
  • running a nursing home or residential care home
  • managing property used as a nursing home or residential care home
  • banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities
  • property development (see additional question on property development below)
  • fishery and aquaculture
  • agriculture
  • production of gas or other fuel
  • generating energy like electricity or heat
  • exporting electricity
  • road freight transport for hire

You may not qualify if your enterprise provides services to another business and both of the following apply:

  • that business’s trade consists mostly of excluded activities
  • a person has a controlling interest in both your enterprise and the other business

For more information, see:

 

Why is property development excluded given that many social enterprises and charities rely on using property as part of their trading activity?

How can I find out more about what might or might not qualify for SITR to be used?

 

Social Investment Tax Relief (or in deed any tax relief) is designed to incentivise investors who might therefore look to make riskier investments. Property development is the excluded activity as raising money against property is a recognised, understood and relatively safe form of investment.

SITR can be applicable in some cases but setting out your case to HMRC in a detailed and thorough way will be essential.

As more case studies have been published, we have learnt from applications by Piers and Homelessness Charities that there are some activities involving the use of property which may allow for SITR to be used.

For more information, see:


SITR & State Aid

How much money can I raise using SITR?

  • Organisations trading for more than 7 years can raise up to around £290,000 in any three-year period.
  • Organisations trading for less than 7 years can raise up to £1.5m over its lifetime.

The tax relief on investments means SITR is a form of government subsidy and is therefore impacted by State Aid rules (see below).

For more information, see:

 

How do State Aid conditions apply to SITR & how much I can raise?

The only state aid that we are concerned about with regards to the current £290K limit is so-called “de minimis state aid”.

However businesses seeking to take advantage of the new £1.5 limit also need to take into account any previous investment under the risk capital schemes (VCT, EIS, SEIS and SITR) and also risk finance state aid.

In order to understand if any of the funding that you have received previously is de minimis or risk finance, you will need to look at the actual grant funding agreement in each case. That agreement should include a statement confirming if it is de minimis or risk finance state aid.

If it doesn’t, the next step is to ask the funder whether or not the grant amounts to de minimis or risk finance state aid. If it is, they should know and you will be able to calculate how and if this impacts on the amount of money you can look to raise to which SITR will apply.


Getting Advance Assurance on an SITR investment

What is Advance Assurance?

Do I need to get Advance Assurance?

How do I apply for Advance Assurance?

Advance Assurance is a process whereby social enterprises and charities can apply for pre-assurance from HMRC to check if their investment proposal is likely to qualify for SITR.  Although it isn’t compulsory, if an organisation’s advance assurance application is successful, they can use this to attract potential investors. Getting Advance Assurance also gives organisations an opportunity to make any changes to their investment proposal should HMRC flag any features that don’t comply.

GET SITR has various resources for organisations looking to apply for Advance Assurance including a guidance note, webinar and a template framework for an application. We also hold regular 1:1 surgery dates whereby organisations can have a free consultation with our SITR expert.

For more information, see:


Raising SITR investment

How do I raise SITR investment?

Where do I go to find investors?

SITR can be used to raise investment from individual investors. And there are several options for doing this:

  • There are fund managers who have raised specialist SITR funds for this purpose
  • Crowdfunding platforms can also feature investment raises that will qualify for SITR
  • Or you can go direct to investors if they are known to you (subject to observing the financial promotions regulations)

For more information, see:

 

What about if I know my potential investors and I want to go direct to raise my investment?

See: A DIY Social Entrepreneur’s Guide to Social Investment Tax Relief. It has lots of examples, links and template documents which you might find useful for raising investment directly from investors.

For more information, see:

 

What guidance is available around the FCA regulation on financial promotions?

Do I need professional advice from someone who is suitably qualified?

And at what stage of the process should I seek that advice?

The Financial Conduct Authority (FCA) rules around financial promotions are lengthy. In order to try and help social enterprises and charities understand how this regulation might affect their planning when considering SITR we have collaborated with Bates Wells (formerly Bates Wells Braithwaite) to produce a Simple Guide to Financial Promotions which is fully downloadable and free to access.

This may help you understand more about what a financial promotion is, when it might apply and help you to ensure you comply with the regulations.

This guidance is not designed to replace the need for professional legal or authorised and regulated support.

For more information, see: