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Social Investment Tax Relief

The Government introduced SITR in 2014 to encourage investment in social enterprises. Up to 5 April 2023, investors could invest up to £1m a year in qualifying shares or loans in SITR-qualifying enterprises to benefit from Income Tax relief at 30% of the amount invested.

SITR for Investors

Up to 5 April 2023, investors could invest up to £1m a year in qualifying shares or loans in SITR-qualifying enterprises to benefit from income tax relief at 30% of the amount invested. In order to retain income tax relief investors must hold the investment for at least 3 years from the date they invested.

After the qualifying period investors may benefit from capital gains tax disposal relief on an investment which they disposed of at a profit.

Investors may also offset losses on disposal of a share investment, either against capital gains or (in some cases) against income, net of any tax relief retained.

Investors may not be connected with the social enterprise by employment, must not have more than a 30% stake, and are subject to some anti-abuse rules. If investors already have non SITR shares in the company, they may not qualify for SITR tax relief on new shares to the extent these are were issued on or prior to 5 April 2023.

Investors can could also defer an existing capital gains tax charge if they re-invest the gain in a qualifying SITR investment on or prior to 5 April 2023.

Before investors can claim most of these reliefs, HMRC first has to certify that the social enterprise invested in, and the investment, meets all the requirements. Some of the tests have to be met throughout the 3-year qualifying period, or HMRC will recover some or all of the tax relief.

SITR for Social Enterprises

To be eligible for SITR investment on or prior to 5 April 2023, a social enterprise must have met all of the conditions, including:

  • It must have had fewer than 250 employees.
  • It must have had no more than £15m in gross assets.
  • It must not have been controlled by another company.
  • It must not have been quoted on a recognised stock exchange.

The amount of investment that a social enterprise which was less than seven years old could have raised on or prior to 5 April 2023 through SITR was £1.5 million. Older social enterprises could have raised up to €344,827 (the exact sterling equivalent is the spot exchange rate on the date of investment) in any 3 year period, taking into account certain other publicly funded support. The money must be used within 28 months for a qualifying trading activity.

Most trades qualified but the company must be trading commercially with a view to a profit. The company didn’t need to be trading in the UK.

The company may not have qualified if a substantial part of the trade includes:

  • dealing in land
  • banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities
  • property development
  • fishery products
  • agricultural products
  • road freight transport for hire
  • providing services to another person where that person’s trade substantially consists of excluded activities, and the person controlling that trade also controls the company providing the services
  • asset leasing
  • receipt of royalties and licence fees
  • nursing homes and residential care homes
  • generation of power or production of fuel

How we can help

We can advise on eligibility and can liaise with HMRC on your behalf.

Once a social enterprise has received investment, we can make the statutory approval application to HMRC. We can also advise if you are having problems with HMRC in relation to SITR.