Pioneers Post

Gift Aid for social enterprises?

28 April 2009
Alastair Irvine of Baker Tilly Chartered Accountants

Alastair Irvine of Baker Tilly Chartered Accountants

People keep complaining that social enterprise does not have special tax reliefs available to encourage investment. It's technically correct, but it’s not the full story, says charities tax expert Alastair Irvine.

What happens if we match private sector smarts with ethical beliefs, in a fundamentally social enterprising manner? Why not apply private venture capital tax incentives for our own ends?

Surely this is precisely what social enterprise is all about?

The Enterprise Investment Scheme (EIS) is a private venture capital tax relief that allows an individual to make tax efficient investments in certain types of company. There can be two main forms of tax relief for the individual:

  • Their income tax bill is reduced by 20 per cent of the investment they make

  • They pay no capital gains tax on any growth in value of those shares

Individuals can make an investment in your socially enterprising company and gain tax relief on that investment (potentially far in excess of Gift Aid relief). Suddenly it appears that social enterprise does have an equivalent of Gift Aid - what's not to like?

This would be an investment, not a donation, so will mean giving up an element of control of the enterprise, but in many ways an investment could be preferable as your interested individual is making a conscious decision to be involved and supportive in the long term. Great PR if you have the right individual on your books.

As with everything tax related, it's a mine field and you'll need your very own bomb squad. Companies wishing to fall within the Enterprise Investment Scheme need to fulfill certain criteria. Broadly speaking the company must not be:

  • Limited by guarantee, but is limited by shares

  • Quoted

  • Controlled by another company

  • Conducting certain trades, most commonly

  • A land or property backed business

  • Working in the financial markets (the City)

  • Offering legal or accounting advice

  • In certain types of heavy industry or agriculture

  • Operating nursing or care homes

I could go on about the regulations, but this is not the place. The aim of this article is to widen the horizons of the social enterprise sector. Tax relief on investments into a social enterprise is possible. You will need specialist advice and this will probably cost you money, but it will be worth it.

So the next time someone tells you they'd love to help you get started, but they won't enjoy Gift Aid relief on the donation, don't let them walk away for good. Instead, ask them whether they are truly interested in matching the best of the private sector with the best of the third sector.

Alastair Irvine is both Charities Tax Specialist and CSR Champion at Baker Tilly Chartered Accountant's Guildford office. Mainstream corporate tax consultancy feeds his family, volunteering for social enterprises feeds his soul.


Social investment fund

Yes, I like that.

Something slightly different was described in the concept of a social enterprise investment fund, overseen by a panel of citizen representatives where US government were called upon to contribute half. It was submitted to the US Senate 3 years ago. It was suggested that forward looking investors might create further social impact by additional investment in the fund.

The US chose to launch the East Europe Foundation to fulfil a similar objective.

Earlier this year, in the run up to the social enterprise consultation with Peter Mandelson, I'd raised the same idea for the UK, with the suggestion that higher returns might be made available to those who invested this way. For some reason it was deleted.


Jeff Mowatt
People-Centered Economic Development