Next month, Social Investment Tax Relief will have been in operation for 2 years, yet it seems as if this scheme is still very much in its infancy. When the scheme was launched in April 2014, we were all so enthused by it, believing that it would have a dramatic impact on the social environment. But this has not happened, we have seen a trickle at most, so why is this?
Well, there are a number of reasons:
Firstly, the current limit for investment in the social enterprise, circa £270k.
Entrepreneurs become aware of SITR through social networks, so at Sapphire Capital Partners we often get interest and questions from new social ventures. One of the favourable aspects of SITR was the inclusion of activities specifically excluded under Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS), such as renewable energy and nursing homes. We had many clients who were eager to progress down this route but with the current limit for investment in the social enterprise, circa £270k, SITR was not a practical option. It is disappointing to note that renewable energy has since been removed from SITR eligibility with effect from November 2015.
Secondly, do the right people know about SITR?
SITR is indeed a ground breaking scheme which offers attractive tax benefits to investors, and practical funding opportunities for social enterprises. There are numerous social enterprises in existence, and more and more are springing up each day, so why aren’t we seeing a glut of social enterprises and investors interested in this scheme. Quite simply, SITR is not being promoted in the right places, meaning that the social enterprise and the private investor are unaware of the opportunities under the scheme.
As an example I use the case of the local charity, wanting to introduce a Gift Aid system into its retail network at a cost of £50k. This charity has many donors, who donate readily each year, but none do so through SITR. There was discussion around the table of how they could raise this initial funding, with assurances that it would pay for itself by 2019 – a SITR project if ever there was one! And I would guess that this is typical of many social enterprises as there is no readily available network to bring the social enterprise seeking funding, and the private retail investor together.
And finally, SITR just can not compete with it's 'big brothers'.
I would doubt whether SITR comes highly on the Independent Financial Advisors (IFAs) list, and I would question whether they have sufficient knowledge of the implications of SITR to adequately advise the client. The most likely cause of this is that the average investor who seeks financial advice is more likely to be interested in the sophisticated market, and will be steered towards other products such as the SEIS, with the more attractive 50% income tax relief, and EIS, with an investor limit of up to £1m per annum.
So, where does that leave us? Well the long awaited ‘widening’ of the SITR will certainly help those large scale social enterprises, and will put SITR on an equal footing with EIS. From discussions with HMRC we are hopeful of an announcement on this in later part of this year.
And while we’re waiting for this to happen, we need to educate the social sector and the retail investor by promoting SITR in the right channels and forums. It is essential that the smaller social enterprises are made aware of the alternative method of funding and the regular patrons are advised as to how their money can benefit their chosen causes to a greater extent.
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.