Earlier this year the Government launched a consultation on Social Investment Tax Relief (SITR) with an aim to understand how it has served the sector, and to gather input to inform its future. It currently has a clause which will bring the scheme to an end in April 2021.
We took this an opportunity to share our experience of SITR. We believe it is a valuable development and should continue beyond 2021. However, a number of essential changes are needed to unleash its potential and transform it into a tool that actively leverages more capital for social purpose organisations.
What is Social Investment Tax Relief?
Social Investment Tax Relief (SITR) is a tax break for individual investors making investments into charities and social enterprises. It provides a 30% tax break for eligible investors.
The relief was launched in 2014 as part of the government’s drive make the UK ‘the easiest place in the world to invest in social enterprise’.
SITR is the charity and social enterprise equivalent of existing venture capital schemes - Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) - that aim to encourage private investors to invest in early stage companies and other small businesses.
Aside from the organisations that are eligible, the main difference between SITR and other venture capital schemes is that it is available on debt as well as equity investments.
How has it worked and what needs to change
SITR was launched to close the gap between the supply and demand of early stage capital and the recognition that social investment deals under £500k are often prohibitively expensive and high risk.
In 2014, the then Chief Executive of Big Society Capital, Nick O’Donohoe, claimed that for any social investors making investments of £250k or less, some form of subsidy would be required and “some part of the investment will always have to be grant.”
SITR was introduced as one mechanism to incentivise and leverage in more capital into this early stage market. However, it’s had a much lower take-up than expected with just over £11.6m raised through it since launch in 2014. The Government has opened this consultation to explore why.
We believe the premise and structure of SITR is a positive development for the sector, not least in recognising the challenges of the early stage social investment market. However, our experience has found several factors that may have resulted in SITR having a lower take-up than expected. Our recommendations for Government are on how to unleash SITR’s potential in leveraging more capital for social purpose organisations.
The challenge is in the supply of capital caused by uncertainty in investing in asset locked organisations. We have found that the perceived added complexity, scalability and risk profiles of these models often put investors off.
Note: The copied model from EIS hasn’t always been appropriate. Whereas EIS tax relief has been effective in bringing capital into the sector, some of the restrictions placed upon it - which have been copied to SITR - have not necessarily been fit-for-purpose.
Our full response to the consultation is available to download at the bottom of this page.
The Government is now looking at consultation responses and is expected to publish their response in 12 weeks. When that happens, we will look at their response and publish our reflections – so keep an eye on our blog and social media.
UnLtd is also part of the Social Investment Coalition that is looking at the wider landscape of social investment and how it could be transformed to put social ventures’ needs at its heart.
If you’d like to know more about any of this please get in touch with me at firstname.lastname@example.org.
I joined UnLtd in May 2013 and took over as Director of Ventures in 2018. Having started my career in consultancy with McKinsey & Company and subsequently Lloyds Banking Group, I soon found myself craving a career with purpose and to work somewhere that I could create meaningful and lasting impact. UnLtd is exactly that, I am proud and fortunate enough to work in an organisation, with colleagues and of course social entrepreneurs who are driven by social change. As Director of Ventures I oversee all of our latter stage social entrepreneur support. I lead a fantastic team who run our Impact Funds, our accelerators and all of our work when it comes to supporting ambitious social ventures to scale their impact. I am passionate about the role that disruptive social ventures can and will increasingly play to tackle some of our societies greatest challenges.
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