Tax relief is an important incentive in attracting investment into new and high-risk enterprises and the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have become the main route of investment into many businesses.
So why should you choose Social Investment Tax Relief (SITR) and what does this scheme offer us that EIS and SEIS doesn’t?
Five reasons why SITR is the obvious choice.
1.Socially responsible investing - this is on the increase with more and more private investors considering both financial and social returns. SITR is potentially a better brand allowing for investment directly into community based organizations. Where a social enterprise is structured by way of share capital, EIS and SEIS can be used but this option can create confusion about whether community shares are for public benefit or private gain./blog/sitr-who-can-invest
2. Tax relief on excluded trades - most trading activities do qualify for all three types of tax relief, however there are a number of trades which are specifically excluded from EIS and SEIS, but are not excluded from SITR. The most important of these exceptions is residential care, which is a significant area of activity for social enterprise. Other exceptions include hotels, and social finance intermediaries that invest in social enterprises.
3. Debt Finance - SITR has many of the same eligibility criteria as EIS and SEIS, with the main difference being that SITR is available on unsecured debt as well as equity investment. This not only allows the investor flexibility but also enables the social enterprise to access debt at a lower rate than typical finance, and therefore lower their cost of funding./blog/social-investment-tax-relief-how-does-it-differ-from-seis-and-eis
4. An additional finance option - SITR can be claimed alongside EIS and SEIS as these three schemes are not exclusive. So a social enterprise, with share capital, could offer EIS or SEIS on community shares at the same time as offering SITR on unsecured loans. The only restriction is when these schemes are combined, the maximum that can be raised under SITR is reduced pound for pound by the amount raised under SEIS or EIS.
5. Speed of set up - SITR is an attractive option when speed is of the essence for example, in the case of a community buy-out. Many buy-outs fail because the sellers want to sell quickly, and community share offers can take time. It might be much quicker to raise unsecured loans from a small number of committed individuals, than to go through the more formal share offer route.
If you are interested in investing, or attracting investment into your organisation, and would like our help please contact us at Sapphire Capital Partners LLP. We are happy to help.
Written by Violet Spence
As a manager at Sapphire Capital Partners LLP, Violet spends her days assisting clients with SITR, SEIS and EIS schemes for companies and applying to HMRC for advance assurance on behalf of clients.
Contact her by email at Violet@sapphirecapitalpartners.co.uk
For further information and advice on the Social Enterprise Tax Relief, Seed EIS or EIS, please contact Sapphire Capital Partners LLP at the following:
• Office phone: 08 707 348 912.
• Email address: firstname.lastname@example.org