Help for social enterprises

Today’s sponsored post from Baker Tilly accountants explains how social enterprises will benefit from tax relief:

Beneath all the headlines, George Osborne’s Autumn Statement contained some interesting implications for social enterprises and charities.

Social Enterprises have developed into one of the main planks of David Cameron’s Big Society. This is designed to encourage a self-help ethos within communities rather than automatic dependence on the State.

They are essentially a hybrid between a profit-making business and a charity.

Social enterprises can be anything from the Eden Project, which dates back to the 1990s, to a community organisation providing a local shop or safeguarding a village pub.

It is essentially a business that relies for its income on the sale of goods and services, rather than on grants and charitable donations.

It can be a company with paid up share capital, but the vast majority of any profits must be re-invested in furthering its original social mission.

Help for social enterprises

Now it looks as though the UK will become the first country in Europe to provide tax relief on investments made in social organisations via shares or certain types of debt instruments.

This will be introduced in April 2014. To all intents and purposes, it represents an extension of Gift Aid, where the government effectively tops up charitable donations by providing tax relief to individual taxpayers.

This concession will be followed by similar relief on social impact bonds although the statement did not specify an exact date.

The government is clearly eager to promote these bonds which are designed to help commissioning organisations (government departments, local councils and other public service organisations) to raise external funds for socially desirable projects.

Investors in these bonds receive a return if and when certain outcomes are achieved. For example, the impact of a prisoner rehabilitation scheme might be measured by the percentage of prisoners not reoffending within a certain timeframe.

They are useful when, for example, the government is not prepared to finance a new way of doing something until the method has been proven to have a quantifiable effect on results.

The only problem with most types of tax relief is that, sooner or later, someone abuses it by devising a way of using it for tax avoidance purposes.

This has already occurred in the case of Gift Aid with many artificial charities being created simply to generate the tax relief.

The Autumn Statement seeks to counter this by flagging the introduction of legislation to re-define exactly what a charity is for tax purposes.

Charity accountants will also welcome the Chancellor’s decision to allow charities relief from Stamp Duty Land Tax where they buy properties jointly with a profit making partner like a commercial property developer.

Reflecting a recent ruling by the Court Of Appeal, charities will be able to claim relief in the same proportion as it participates in a property purchase.