Chancellor announces 30% tax relief for social enterprises – and some co-operatives

Chancellor George Osborne announced a tax relief for social investment in his Budget, designed to stimulate investment in social enterprises. However, the new tax relief will not apply...

Chancellor George Osborne announced a tax relief for social investment in his Budget, designed to stimulate investment in social enterprises.

However, the new tax relief will not apply to investment in co-operatives registered as industrial and provident societies (IPSs) or companies limited by guarantee (CLGs). But co-operatives set up as community interest companies and community benefit societies can benefit.

“We’re backing investment into social enterprises with a social investment tax relief at a rate of 30%,” said the Chancellor. The rate will allow eligible social enterprises to receive a maximum of around £290,000 investment over 3 years, which is similar to the Enterprise Investment Scheme and Venture Capital Trusts.

James Wright, Co-operative UK’s policy officer, said the tax relief was a step forward in encouraging more investment in the social economy, of which co-operatives were “such an important part”.

Mr Wright said: “Social investment can play an important part in meeting the financial needs of many growing co-operatives, and this tax relief is a welcome incentive to invest in the social economy.

“Many co-operatives, and especially those that are community-owned, can now attract additional investment, and we are particularly looking forward to seeing community share offers making use of this relief. However, with the relief rate set at 30% many societies may continue to use other reliefs already in place.

“Sadly, not all social enterprises will benefit from the relief as currently configured. Those using the bona fide co-operative legal form are excluded. We understand that the Treasury had to draw the line somewhere, but we really didn’t think it should have been there.”

Ian Rothwell, development manager at Co-operative and Community Finance, also believes the new tax relief will not have a major impact on co-operatives, most of them being registered as IPSs or CLGs.

He said: “Any move to encourage social investment in co-ops is to be encouraged and the tax relief may help some community benefit societies to raise capital. However, most of the community owned enterprises that we work with are already registered with Enterprise Investment Tax relief which offers exactly the same tax relief.

“Unfortunately it would appear that this relief is not available to co-ops registered as a company limited by guarantee or an industrial and provident society. Therefore this new scheme will have little or no relevance to the vast majority of co-ops in our sector.”

Mr Rothwell said that the Community Interest Tax Relief (CITR) is far more relevant and enables us to raise low cost capital to lend on to co-ops. When starting up, small co-operatives can also receive a 50% tax relief through the Seed Enterprise Investment Scheme (SEIS).

The Social Economy Alliance, which includes more than one hundred organisations, welcomes the new 30% tax relief-rate for social investment. According to the group, the measure could unlock billions and fuel UK’s growing social economy. The new 30% tax relief has the potential to boost investment in social enterprises and trading charities.

Jonathan Jenkins, chief executive of the Social Investment Business and spokesperson for the Alliance said the relief-rate was “excellent news for Britain’s social economy”.

“Many thousands of new and maturing social ventures need finance to grow and reach their true potential,” he said, adding that this could be a missed opportunity unless the government worked with the sector to market and promote the tax relief among investors.

Full terms and conditions regarding the Social Investment Tax Relief are included in the draft legislation, available online.

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