Have you ever asked the question “What is a social enterprise?”. Well, interestingly ‘social enterprise’ is not a legal term, but an approach. This phrase is used to describe a business which has a social mission. Social enterprises are driven by their values, in that they exist to pursue an explicit social or environmental mission. You may think that this is much like a traditional charity, but there is one key difference. Social enterprises need to earn their money through trade in the marketplace, just like any other commercial business.
Have you ever bought a copy of the Big Issue? Or bought a FairTrade product from the supermarket? Then you are doing your bit in supporting these worthwhile causes as these are both examples of a social enterprise which exist to make the world a better place.
But can you do more?
Maybe you are passionate about a cause and have ideas on your own social enterprise but don’t know how to get started. No need to worry, there is plenty of help and advice out there on how to set up and structure your enterprise from organisations such as Social Enterprise UK, Social Enterprise Scotland, Social Enterprise NI and Invest NI.
And there are plenty of social enterprises operating in today's marketplace, locally and globally. A recent report ‘The State of Social Enterprise Survey 2015’, published by Social Enterprise UK, notes that 28% of social enterprises operate a local level, with a further 40% operating across several localities or regions, and significant proportions operating across whole countries, be that England, Northern Ireland, Scotland or Wales.
As with most social enterprises, you will need to consider how to fund the business. This has become easier in more recent years with the Government’s introduction of a tax incentive scheme aimed specifically at investors in social enterprises, namely Social Investment Tax Relief (SITR). The Government launched this scheme in 2014 believing that private investment could deliver economic growth, whilst at the same time tackling some of society's toughest issues. And the aforementioned ‘State of Social Enterprise Survey 2015’ has given comfort that these initiatives are working with the data clearly demonstrating that “social enterprises have their greatest concentration in the areas of the greatest deprivation, with 31% of social enterprises working in the most deprived communities in the UK”.
A social enterprise can currently receive up of €344,827 (approx £253,000 at today’s exchange rate) of SITR investment over three years, but there are plans in place to extend this significantly. /blog/what-is-happening-with-the-sitr-scheme
There are many people who want to do their bit for society without being directly involved in the enterprise, and will choose to donate funds, or invest directly in their chosen cause or causes.
An investor can invest up to £1m annually, at present this would need to be spread over a number of qualifying social enterprises.
Investment can be made through shares, but in most cases debt investment, (i.e a loan to the enterprise), will be the preferred option as the majority of social enterprises are not structured by way of share capital./blog/does-my-business-qualify-for-sitr-investment
The investment will qualify for up to 30% income tax relief in the year of investment. So, for every £10,000 invested, the investor can reclaim £3,000 from their tax liability.
If the debt investment route is used the social enterprise will receive funding without having to give up any ownership or control of the enterprise, with the investor simply becoming a debtor of the enterprise.
The enterprise will have use of the funds for the minimum of three years as, to retain the SITR relief, the investor must hold the investment in the enterprise for this three year period, but they may choose to retain it for longer than this. The investor may seek an annual interest payment which will be subject to agreement at the loan set up stage, and they will expect to recoup their investment at the end of the agreed loan period.
If you are interested in investing, attracting investment into your organisation, or applying for HMRC advance assurance and would like our help please contact us at Sapphire Capital Partners LLP. We are happy to help.