There is a range of tax reliefs and guarantees available to responsible finance providers and their investors:
Community Investment Tax Relief
The Community Investment Tax Relief (CITR) scheme was devised to stimulate the flow of private finance to support enterprise in the UK’s deprived communities. It was established under the Finance Act 2002 and is managed by HM Revenue & Customs and the Department for Business, IEnergy and Industrial Strategy. CITR provides a tax incentive to investors in accredited community development finance institutions or CDFIs (also known as responsible finance providers).
Investments may be in the form of loans, equity investment (either shares or securities) or deposits (for those CDFIs that are banks). Investment raised is then on-lent by the CDFIs to qualifying enterprises in designated deprived communities.
CITR is available to any individual or company with a UK tax liability investing in an accredited CDFI, where the investment is held for at least five years. The taxpayer receives a relief to offset against their tax liability of 5% of the amount invested per annum, in addition to any interest or dividend paid by the CDFI.
Enterprise Finance Guarantee
The Enterprise Finance Guarantee (EFG) is a targeted measure which supports additional lending, of between £1,000 to £1 million, to viable small businesses lacking sufficient collateral or financial track record to access a normal commercial loan. The guarantee can be used to support new loans, refinance existing loans or to convert part or all of an existing overdraft into a loan to release capacity to meet working capital requirements.
EFG was introduced in January 2009 and is managed by British Business Financial Services, a wholly-owned subsidiary of British Business Bank, but remains on the balance sheet of the Department for Business, Energy and Industrial Strategy. It was established as a response to the economic downturn which led to the decline of credit to SMEs and guarantees 75 per cent of the loan. While the government provides a guarantee to the lender, it has no role in the decision making process and is not party to the loan agreement between the borrowing business and the lender.
Currently 17 of our members are accredited to lend under the guarantee scheme. They have made over 850 loans totalling £22 million since the measure’s inception.
Social Investment Tax Relief
Social Investment Tax Relief (SITR) provides a range of income and capital gains tax reliefs which can be claimed by individual investors for investments they have made in social enterprises unable to gain access to finance, with a view to helping people and communities. The investor must not be a paid director, partner or trustee of the social enterprise or of a subsidiary of the social enterprise.
Our members that lend to social enterprises can access investment through SITR, but at this time other members cannot benefit from it.
The Big Society Capital website contains a range of free resources on SITR, including:
- A two-page leaflet on SITR that reflects the 2017 legislation changes and a longer note that explains these in more detail
- A Knowledge Bank of FAQs on SITR based on the experiences of charities and social enterprises
- A Webinar that walks through the technical basics of SITR
- A guidance note on ‘operating concessions’
- A guide to applying for Advance Assurance from HMRC