Social Enterprise UK has raised concern that the new social investment tax relief will exclude companies limited by guarantee with a social mission, but the CIC Association argues it only costs £15 to convert to a CIC structure, which is eligible for the relief.
And the relief is also likely to exclude some large charities, as it has a maximum limit on employee numbers of 500 for eligibility.
Today the government has released its response to a consultation on social investment tax relief into social enterprises. It has decided that organisations eligible for the relief will have to be regulated by a body checking for social purpose, such as charities, community interest companies and community benefit societies.
Companies limited by guarantee (CLGs) will be excluded. Nick Temple, director of business and enterprise at Social Enterprise UK, said:“While the Chancellor’s confirmation of tax relief for social investment is to be welcomed, as is the Treasury’s work to date on this issue, 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 relief was intended to address.”
However, government says that opening up the relief to organisations unregulated for a social purpose would open it to risk of abuse. It says it is reluctant to set up a new regulatory process for organisations like CLGs, and argues that CLGs and other organisations can convert to CICs easily.
John Mulkerrin, director of the CIC Association, agrees: “It only costs an extra £15 to be a CIC for them, and so far no one has been able to give me one genuine reason (and I have been seeking it for over a year) why a social enterprise CLG wouldn’t be able to gain CIC status and qualify for the relief. Or even just have a wholly-owned CIC subsidiary for £35; no other solution is as simple, effective or cheap for them. This is exactly what CIC was intended to do.
“What is the negative of a CLG adopting CIC status?”
Large charities excluded
Elsewhere, the government has decided to expand the employee limit for qualifying for social investment tax relief from 250 employees to 500. However, CFG has argued before that this is too small, and will exclude many large charities from the relief.
Responding to the goverment's annoucement today, Jane Tully, head of policy at CFG said: "Lifting the cap on size of investee organisation so that charities with up to 500 employees are eligible will extend the scope to a small extreme. Under the proposals of 250 employees we found 560 chariteis would be excluded. It is not clear to what extent the new proposals reduce that.
"We will aslo need to review the implications of the gross asset cap as it’s not clear how many charities this may exclude."
As announced last week by the Chancellor, the government has considered there is value in making social impact bonds eligible for tax relief under the scheme, and will develop a tax relief for social impact bonds alongside the tax relief into social enterprise.
The government will consult on all its proposals until February 2014 and introduce legislation on both social investment tax reliefs in Finance Bill 2014.
Good news for CICs
Today, the government has also released its response to a consultation on CICs. It has concluded that the maximum dividend per share cap should be removed; the maximum aggregate dividend cap should be retained at 35 per cent; and the maximum interest rate for performance related interest should be increased from 10 per cent to 20 per cent.
Responding to the news, John Mulkerrin said: “Until now the CIC share structure was impotent. The problem has been removed with this consultation and suggests a very positive future.
“These recommendations solve the fundamental flaw that was built into the CIC share structure. It will allow entrepreneurs, employees and the community to innovate and participate in locally led initiatives, and allows generous profit sharing with external investors. I’m personally very excited about we can achieve collectively over the next few years.”
