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Response to the consultation on social investment tax relief

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At Budget 2013 the government announced that it would introduce a new tax relief for private investment in social enterprise from 2014, and would consult on the detail by summer 2013.

We agree with the proposed criteria for evaluating proposals: effectiveness, affordability, simplicity, sustainability and compliance with the European Commission’s State aid rules, however we find many of the proposals restrictive.

The definition of ‘social enterprise’ that the proposals set out is too limited and should be extended to Companies Limited by Guarantee. Many existing social enterprises have this legal form and conversion to a charity or CIC will not always be appropriate or beneficial to the organisation. This legal form provides additional flexibility, for example, to create group structures in social enterprise and should be included.

The exclusions of ‘particular activities’ should be as few as possible, and an organisation that can demonstrate social outcomes should be included. The Big Issue in the North, for example, is both a magazine publisher and provider of support for homeless and vulnerably housed people.

Social enterprises are often engaged in providing health and social care and therefore have high numbers of employees on modest salaries.  The suggested size limit of 250 employees would unfairly exclude social enterprises with relatively modest turnover.

Social investors often require returns in the form of a combination of social outcomes and financial returns. Insisting on broadly commercial rates will reduce the value placed on social outcomes. To limit manipulation on returns, a relationship between acceptable returns for social enterprise tax relief and commercial rates could be established.

To insist on commercial rates of return would reduce the focus on social outcomes, which are valued by many investors in social enterprise. This would have the undesirable  effect of driving the development of activities that are more commercial and with fewer social outcomes.

You can download and view our full response here.

You can read more about the consultation here.

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