Social Investment Tax Relief (SITR)

1. Tim Culverhouse - Partner • 18 March 2014 Social Investment Tax Relief (SITR)

2. Topic today Looking at the Who, What, When, Why and How of SITR CIC changes which could assist raising finance/investment Other finance raising topical at the moment Francis Clark Independent accounting firm with 45 partners and over 400 staff Offices from Truro to Salisbury Tax and sector specialists My role

3. Why SITR, why now Government consultation launched by PM at G8 conference 6 June 2013 to look at best environment to help SE in Britain – response to consultation issued 10 December 2013 Tax system is often the key to creating the right environment for investment and encourage sector growth further The proposed changes should give a more dynamic & interesting environment for investment – attracting new investors Growing number of CICs and SE now looking for investment The current environment: • CHARITY V PRIVATE INVESTMENT/EQUITY • PHILANTROPHIC TENDANCIES

4. What is being given Fundamentally tax relief to individuals and a better investment environment for Social Enterprises Income tax relief on Qualifying investments as a deduction from tax paid (rate announced tomorrow – budget day) – 30%? Capital gains exemption on disposals of investments after the minimum investment period (3 years) – early redemption = clawback Capital gains tax deferral – roll over a gain made into the purchase of qualifying social enterprise investment No tax relief given on dividends/interest earned Other relevant items include IHT relief and loss relief

5. Who can Qualify - Company Limited by guarantee or by shares Must have ‘social purpose’ and be regulated by someone who monitors this – e.g. CIC regulator, Charity commission Employees less than 501 Some activities are excluded (compared to EIS) • Agriculture • Coal and steel • Ship building • But SITR now includes Nursing and care homes (EIS doesn’t) • & Lending companies who lend to CICs/SEs (EIS doesn’t) Very strict rules to follow – seek advice to qualify

6. Who can Qualify - Individual UK resident paying tax You only get relief if you have tax due (HNWs a target?) Likely £1m cap on investments per investor per year Limit on amount of ownership you can have is likely (30% or less) Differs to Community Investment Tax Relief (CITR) which gives the investee 5% relief on the investment per annum for five years.

7. What can qualify – the investment Shares / Equity Loans / Debt No security given and lowest ranking on a wind up No entitlement to early repayment Redeemable shares are possible (but watch for withdrawal of SITR) MUST CARRY RISK TO THE INVESTOR

8. Why seek investment Expertise and cash Shared risk and reward Structure to company Forward planning and cashflow Speed up the process for development Downsides • Shared reward • Pressure and reporting • Formalities

9. Changes – CIC regulations At 30 November 2013 there were 8666 CICs listed Access to investment remains a barrier Just 25% of CICs continue to opt for ‘Limited by shares’ Conclusions from consultation: • Remove maximum dividend per share cap • Maximum aggregate dividend cap should remain at 35% • Performance related interest rate increased from 10% to 20% Timetable for change will be introduced soon by CIC regulator

10. Sources of funding Individuals / Philanthropists VCTs and Angel investment Peer to peer lending Crowdfunding/ Crowdsourcing SWIG PWGF and Grants Bank lending (security often required personally) To name but a few…. If interested, speak to Corp Finance team

11. Growth Accelerator Francis Clark are approved Growth Accelerator coaches This can enable you to have assistance in your business to help with business development It can also helps fund leadership and management opportunities for staff 1 – 4 ee’s £600 + £700 VAT 5 - 49 ee’s £1,500 + £700 VAT Recover VAT if registered 50 – 249 ee’s £3,000 + £700 VAT

12. Thanks for listening QUESTIONS or COMMENTS