Social Investment Tax Relief (SITR)

Tim Culverhouse - Partner

18 March 2014

www.francisclark.co.uk

Topic today

• Looking at the Who, What, When, Why and How of SITR

• CIC changes which could assist raising finance/investment

• Other finance raising topical at the moment

Francis Clark

• Independent accounting firm with 45 partners and over 400 staff

• Offices from Truro to Salisbury

• Tax and sector specialists

• My role

www.francisclark.co.uk

Why SITR, why now

• Government consultation launched by PM at G8 conference 6 June 2013 to look at best environment to help SE in Britain – response to consultation issued 10 December 2013

• Tax system is often the key to creating the right environment for investment and encourage sector growth further

• The proposed changes should give a more dynamic & interesting environment for investment – attracting new investors

• Growing number of CICs and SE now looking for investment

• The current environment:

• CHARITY V PRIVATE INVESTMENT/EQUITY

• PHILANTROPHIC TENDANCIES

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What is being given

• Fundamentally tax relief to individuals and a better investment environment for Social Enterprises

• Income tax relief on Qualifying investments as a deduction from tax paid (rate announced tomorrow – budget day) – 30%?

• Capital gains exemption on disposals of investments after the minimum investment period (3 years) – early redemption = clawback

• Capital gains tax deferral – roll over a gain made into the purchase of qualifying social enterprise investment

• No tax relief given on dividends/interest earned

• Other relevant items include IHT relief and loss relief

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Who can Qualify - Company

• Limited by guarantee or by shares

• Must have ‘social purpose’ and be regulated by someone who monitors this – e.g. CIC regulator, Charity commission

• Employees less than 501

• Some activities are excluded (compared to EIS)

• Agriculture

• Coal and steel

• Ship building

• But SITR now includes Nursing and care homes (EIS doesn’t)

• & Lending companies who lend to CICs/SEs (EIS doesn’t)

• Very strict rules to follow – seek advice to qualify

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Who can Qualify - Individual

• UK resident paying tax

• You only get relief if you have tax due (HNWs a target?)

• Likely £1m cap on investments per investor per year

• Limit on amount of ownership you can have is likely (30% or less)

• Differs to Community Investment Tax Relief (CITR) which gives the investee 5% relief on the investment per annum for five years.

www.francisclark.co.uk

What can qualify – the investment

• Shares / Equity

• Loans / Debt

• No security given and lowest ranking on a wind up

• No entitlement to early repayment

• Redeemable shares are possible (but watch for withdrawal of SITR)

• MUST CARRY RISK TO THE INVESTOR

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Why seek investment

• Expertise and cash

• Shared risk and reward

• Structure to company

• Forward planning and cashflow

• Speed up the process for development

• Downsides

• Shared reward

• Pressure and reporting

• Formalities

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Changes – CIC regulations

• At 30 November 2013 there were 8666 CICs listed

• Access to investment remains a barrier

• Just 25% of CICs continue to opt for ‘Limited by shares’

• Conclusions from consultation:

• Remove maximum dividend per share cap

• Maximum aggregate dividend cap should remain at 35%

• Performance related interest rate increased from 10% to 20%

Timetable for change will be introduced soon by CIC regulator

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Sources of funding

• Individuals / Philanthropists

• VCTs and Angel investment

• Peer to peer lending

• Crowdfunding / Crowdsourcing

• SWIG

• PWGF and Grants

• Bank lending (security often required personally)

• To name but a few…. If interested, speak to Corp Finance team

www.francisclark.co.uk

Growth Accelerator

• Francis Clark are approved Growth Accelerator coaches

• This can enable you to have assistance in your business to help with business development

• It can also helps fund leadership and management opportunities for staff

• 1 – 4 ee’s £600 + £700 VAT

• 5 - 49 ee’s £1,500 + £700 VAT Recover VAT if registered

• 50 – 249 ee’s £3,000 + £700 VAT

www.francisclark.co.uk

Thanks for listening

QUESTIONS or COMMENTS

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