The number of organizations using tax breaks for social investments fell by a third in 2019/20, according to new figures.
The latest government data shows that in the year ended March 2020, 30 social enterprises received a total of £ 3.3 million in investments through SITR, compared to 45 companies that raised £ 4.7 million the previous year.
The program offers individuals investing in charities and social enterprises that meet certain criteria, such as net worth less than £ 15 million, a 30 percent tax break.
Since its launch in 2014, social enterprises have raised a total of £ 15.8 million under the program.
At the beginning of the year, a group of social finance institutions and others successfully advocated an extension of the measure until April 2023.
Andrew O’Brien, director of foreign affairs at umbrella organization Social Enterprise UK, said the data was not surprising given the uncertainty about the future of SITR, which has deterred social enterprises and potential investors.
“This was a point made to the government during the long delayed consultation on SITR and recently during the budget debate,” he said.
But O’Brien added, “We remain concerned that a two-year extension of the tax break is not giving social enterprises and investors the time they need to plan, source and execute investments.
“The tax break must have the government’s full support if it is to be successful, and we cannot expect social enterprises and social investors to commit to taking advantage of these tax breaks if the government does not seem to be able to protect itself to decide about the future of SITR. “
Melanie Mills, senior director of social engagement at social investment firm Big Society Capital, said that while the average transaction size has decreased, it is encouraging that advance protection requests have remained consistent.
It found that between 2019/20 and 2020/21, 77 percent of applications for the larger Enterprise Investment Scheme were approved.
“We have to think about the background under which the tax breaks are implemented,” she said.
“The government announced a call for evidence on SITR in 2019, but because of Brexit, then the elections, then the pandemic, we didn’t have any feedback on the evidence it had collected until the budget was reached.”
Mills expected a loss of investor confidence as no one knew if the program would continue.
But SITR remained a complicated scheme, she said, and the lower acceptance of SITR compared to EIS speaks for some of the complexities of the former.
“There are also a number of trading activities that help make social enterprises sustainable; a change in regulations in 2017 eliminated some of that activity, ”said Mills. “This can be a challenge for social enterprises that want to take advantage of tax breaks to meet all eligibility requirements.
“We will work hard to ensure that there is a replacement tax relief that ensures continuity after April 2023 and works even better for investors and equity holders. We have two years to ensure that all organizations that want to use SITR can. “