In the 2021 Spring Budget, Social Investment Tax Relief (SITR) was extended until 2023.
Saving SITR, the tax break aimed at encouraging investment into the social sector through individual investors, was not the only outcome we had hoped for. However, the extension poses real opportunities for social enterprises and charities looking to raise patient and affordable capital. That being said, the time to consider using SITR is now.
The arrival of the Impact 12 Fund
The market certainly isn’t quiet. Thanks to the SITR extension, investments utilising the tax relief are continuing to be made by several social investors into mission driven organisations across the country along with an increase in new SITR inquiries. We have also seen the launch of the new Impact 12 Fund, which plans to utilise SITR.
One of the overwhelming positives of SITR investment is that over 90% of it takes place outside of London, levelling the playing field for rural and remote social enterprises, charities and community businesses. And this is certainly the case for the Impact 12 Fund. Managed by SIS Ventures, this exciting new fund will finance mission-driven businesses formed with support from 12 Partner Universities - all of which focus on helping to address social challenges that exist outside of London.
Alastair Davis, CEO of Social Investment Scotland and an Executive Director of SIS Ventures explains why SITR investment is now just as valuable as ever:
‘Universities are emerging as a driver of social innovation, supporting the spin out of some of the country’s most exciting mission-driven businesses. We are delighted to be involved in the management of the Impact 12 Fund, to provide mission aligned investment and support to these ventures, to enhance their social and environmental impact. Many of these ventures are established using more traditional social enterprise structures and as such the continued availability of SITR will be essential to support their growth.’
On the ground, SITR continues to be utilised by social enterprises, charities and community businesses, unlocking vital capital to support their growth.
Citizen Coaching, a Birmingham-based social enterprise that delivers counselling, personal coaching and anger management services, is one of those organisations. In April, just a few weeks after SITR was extended by the Treasury, they received £125,000 of investment from the Resonance West Midlands SITR Fund. This investment will enable the expansion of their counselling team and develop a crucial online mental health service for those living across Birmingham.
Southmead Development Trust is a valuable and much-loved community enterprise based in Bristol. In June, an investment of £66,000 from the Resonance South West SITR Fund went towards supporting the Trust’s buildings and flagship Community Hub, the Greenway Centre. As with many community organisations, the pandemic had a big impact on the Trust’s ability to make income, so this influx of capital will go a long way to boost their range of services for local residents across health, wellbeing, employment support and community events.
Without the SITR extension, organisations like Citizen Coaching and Southmead Development Trust might not have been able to unlock capital to scale, innovate and make a long-lasting impact on their local communities.
The SITR elephant in the room
Yet, the question remains: what will fill the gap when SITR retires in 2023?
Whilst we know that SITR isn’t perfect, it has been adequately used to raise over £15 million of ‘lifeline capital’ into social enterprises and charities (and overwhelmingly so in rural areas). Together with our partners across the social impact investment sector, we believe that to retire it without replacement would be deeply damaging and would reverse efforts to reduce funding gaps across the social sector.
There is also a growing need to consider other tools available to the government for example, blended finance - which is a mix of grant and loans - or government-backed loan guarantees such as the recent Coronavirus Business Interruption Loan Scheme (CBILS), rather than focus solely on reforming SITR in isolation. This is where our focus will be for the future, engaging with the government on the sweep of tools which can have the most impact and success - either in the form of a new tax relief or an alternative.
We know that tax relief isn’t the only solution to filling the gap to more patient and affordable capital for social enterprises and charities. To understand what this need is, we will be engaging with organisations and stakeholders across the sector. We know that this is not a simple or an easy task, which is why we want to listen to your voice.
In the meantime, we remain committed to ensuring social sector organisations for whom SITR is a viable option are able to navigate and access it. We will also continue to support fund managers and wealth advisors to deploy as much SITR capital as possible during this extension period.
If you’re an investor, adviser, social enterprise or charity looking for support and guidance on Social Investment Tax Relief, visit GET SITR here. Or, if you would like to join the conversation and find out more about ongoing work with the UK Government on SITR contact Melanie Mills, Senior Director Social Sector Engagement at Big Society Capital.