Possible new tax break

HM Treasury and the Department for Business, Innovation and Skills (‘BIS’) have issued a consultation on the Government’s plan, announced at Budget 2013, to introduce a new tax incentive to encourage private investment in social enterprise from 2014, for comment by 6 September 2013 say Harris & Co accountants Northampton who specialise in providing accountancy services to small and medium sized businesses.

The aim of this new tax relief is to complement other Government initiatives in encouraging private investment in social enterprise and helping it to become self-sustaining in the long term. The consultation covers the investees, including Community Interest Companies (CICs), Community Benefit Societies (Bencoms) and charities; the types of investment eligible for the relief; and the tax reliefs themselves.

The key characteristics identified for an investment to be eligible are that: the same investment does not also qualify for tax reliefs under Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS); the original investment or principal is not secured against assets or subject to guarantee; the holders of the investment do not have preferential rights to assets on winding-up of the social enterprise, compared to other holders of the same type of investment; and returns on the investment should be payable at a broadly commercial rate and on broadly commercial terms.

As for the reliefs themselves, the Government plans to offer income tax relief on qualifying investments to be calculated as a percentage of the amount of the qualifying investments made, and will be relieved in terms of a deduction from income tax liability. The rate of the income tax relief will be set out at Budget 2014. In addition, to encourage individuals with significant capital gains to invest in social enterprises, the Government plans to offer a capital gains tax reinvestment relief. The tax reliefs can only be claimed when an individual is not connected with the qualifying social enterprise.

More details are available from Gov.uk.