Chancellor George Osborne announced in the autumn statement that investors are to receive tax relief when they invest in social enterprises and social impact bonds. However, the UK body for social enterprise has expressed concern that some enterprises will be unfairly excluded.
Social Enterprise UK has raised concerns that the social investment tax relief measures will ignore Companies Limited by Guarantee (CLGs) with a social mission. The organisation says that this is a common business form among social enterprises.
Nick Temple, director of business and enterprise at Social Enterprise UK, said, “It is disappointing to learn that not all types of social enterprises will be able to benefit.
“Genuine social enterprises with a social mission, many of which are companies limited by guarantee, must be helped, not hindered, when trying to access social investment. Excluding large numbers of them doesn’t help create the level playing field for all businesses that this tax relied was intended to address.”
The tax relief benefit is designed to encourage investors to consider and invest in businesses that have a social mission and a wider positive impact. Demand for finance within the social enterprise sector remains high, according to research published in the People’s Business report earlier this year.
The survey found that 48% of social enterprises had sought to raise external finance in the past 12 months, from a wide range of options including equity, twice the proportion of small and medium sized enterprises (SMEs). Over a third also cited finance as the single largest barrier to growth and sustainability, areas in which the new measures could go someway to improving.
Despite some criticisms the tax relief has largely been welcomed. Richard Brass, head of UK clients at Berenberg Private Banking and founder of Impact Ventures UK, commented, “Yesterday’s Autumn Statement was another positive step towards increasing the appeal of social impact investment to interested parties.
“The tax relief to encourage investment in social enterprises is in our mind an important step in the right direction.”
Advisers are now urging the chancellor to specify the finer details of the measure. Julian Parrott, partner and financial adviser at Ethical Futures, said, “I welcome the announcement but as with many of the chancellors statements the devil is in the detail.
“At present we seem to have an announcement of intention but not really much clarity on exactly what this will look like and what investments it will apply to – or indeed will it be a new class/type of investment.”
Parrott added that further clarification was also needed from the Financial Conduct Authority (FCA) on how they would treat such investments, as this would make them easier for advisers to advise on and recommend.