In today’s Budget statement it was announced that government will consult on introducing a new tax relief to encourage private investment in social enterprise by this summer, with a promise to introduce the relief in the Finance Bill 2014.
The social investment community has long called for tax breaks for social investment to encourage movement in the market.
A recent report commissioned by Big Society Capital said tax reliefs could generate an extra £480m in social investments.
Nick O’Donohoe, chief executive of Big Society Capital, said it was welcome that the Chancellor had recognised the gap in tax breaks for social investment:
“The Chancellor has today given a very welcome commitment to make changes to the tax system that we believe can stimulate significant additional investment in social enterprises.
“The Chancellor is rightly addressing the anomaly that there are tax breaks for many areas of risk capital investment, and tax breaks for charitable donations, but no tax breaks for those who want to invest risk capital in business whose primary aim is to improve society.”
Speaking to civilsociety.co.uk O’Donohoe added that it was very significant that the government had recognised that the demand from charities and social enterprises for capital would rise. He also said he hoped the civil society sector will visibly support this significant step from government.
Elsewhere, social investors Social Finance suggested the simplest route to creating a social investment tax relief would be to adjust current tax-advantaged schemes to allow all regulated social sector organisations, such as charities and community interest companies with a range of activities and trades, to benefit.
O’Donohoe said Big Society Capital had suggested similar proposals, saying it was logical to extend existing tax reliefs through VCT and EIS schemes to allow for risk investment into regulated social sector organisations.
Commenting on the Chancellor’s move, David Hutchison, CEO of Social Finance, said that tax breaks “would level the playing field to allow social enterprises to offer the same tax advantages as for-profit enterprises. Enhanced access to capital will enable them to deliver impact at greater scale and play a larger part in delivering public services”.
‘Diamond in the rough’
“By committing to introduce tax incentives for social investment, the chancellor has delivered a diamond in the rough of ongoing painful spending cuts. Social investment could help charity leaders achieve more against their ambitions, and the Chancellor’s proposed tax incentives are a welcome step forward. Acevolooks forward to working with the government on the details of this scheme over the coming months.”
Sir Stuart Etherington, chief executive of NCVO, said: “Charities run expert, high-quality services, but often struggle to find the finances they need to expand their work. Social investment is an increasingly important way for charities to grow. We’ve long argued that levelling the tax playing field to ensure that social investments are just as attractive as other investments is a crucial part of supporting this burgeoning market.”
However, while Dan Corry, chief executive of NPC also welcomed the consultation, he expressed a tempered view.
“For the sector, there are a few interesting things in this very political budget. There is some movement on the tax treatment of social investment (although not clear what), a consultation (only).”
Luke Fletcher, an associate at law firm Bates Wells and Braithwaite, also expressed caution: “The announcement is fantastic news and a massive encouragement to all those who have been pushing for a bespoke relief over recent years.
“However, as ever, the devil will be in the detail and there will be a lot of work to do to make sure the tax relief works and is effective. Ideally, it would be available for direct investment by way of equity or debt into social enterprises. It is also likely to raise the thorny question of definition.
“Now that the Government has made its intentions clear, hopefully the relief can be designed with a view to creating the most effective tax relief possible for the benefit of social enterprises, as opposed to the relief being shaped predominantly by political considerations.”
Shadow minister for civil society Gareth Thomas, perhaps not suprisingly, also delivered a cautious view.
Osborne announces a social investment tax relief, vital to closely consider the details after last year’s charity tax shambles #volsecbudget
— Gareth Thomas MP (@GarethThomasMP) March 20, 2013
Via Civil Society