A welcome announcement in the government’s Autumn Statement is the fact that there will be a new tax relief for social investment, which will be launched in April 2014. The news has been heralded by Nick O’Donohoe of Big Society Capital as well as other investment experts.
Whilst the prospect of this tax relief is not necessarily new, as this was originally mooted back in June 2013, the scope of the relief to be actually offered is far wider than when the idea was first put out to consultation. In conjunction with the enhanced tax relief plans, the government has also produced a so-called “road map” for social investment, which will be released next January.
Social Investment Helps the Community
The document is said to laud the work of social organisations, recognising that they help to solve social problems, develop a sense of community and above all help to promote and contribute to economic growth.
The announcement comes following criticism that the original consultation, which took place in June, was too narrow. The original proposal suggested that investments in social enterprises would benefit from a similar tax relief to that provided in the Enterprise Investment Scheme, allowing an investor to claim back a maximum of 30% of their initial investment through tax when equity-like investments are made in charities.
Under the new plans, the structure is expected to remain the same but the relief will now cover social impact bonds and will also allow items such as unsecured loans to be covered. Similarly, far larger investments than were initially mentioned are thought to be covered by the scheme.
The CEO of Big Society Capital, Nick O’ Donohoe, stated that he was fairly pleased by the announced changes. “Based on discussions with the Treasury, we feel very optimistic that this is going to be a bold step forward.” At the same time, O’ Donohoe stressed that more could be done: “What we have at the moment is very high level, but we’re happy with the basic principles being proposed.” Whilst there was a definite sense of positivity about the changes, a sense of disappointment that tax relief only covers direct investments rather than those made to social investment funds remained.
According to law firm Bates Wells Braithwaite, there was a potential issue surrounding a number of social enterprises whose legal model was not asset locked. The senior partner at the firm, Martin Bunch, has carried out much work relating to social enterprises such as charities.