New research: Could CITR offer more money and better terms for community businesses?
Last week saw the publication of the first major piece of research into the impact of the Community Investment Tax Relief (CITR) since the scheme’s launch in 2002.
Completed by Community Investment Services Ltd, the work was commissioned by Power to Change and a number of Responsible Finance providers.
The CITR scheme encourages investment in disadvantaged communities by giving tax relief to investors who back businesses and other enterprises in less advantaged areas by investing in accredited Community Development Finance Institutions (CDFIs). CDFIs, in turn, must invest the capital in small and medium sized enterprises based in, and/or serving, the most disadvantaged communities in the UK.
A perfect fit for community businesses, in other words.
The research found that £145 million of CITR investment had been generated, facilitating around £217 million of lending into SMEs in disadvantaged communities. This investment has created over £1.5 billion of value for local economies, with a cost to the taxpayer of around £36 million.
Investment can be in the form of debt or equity (so this is crucial to our space, where many organisations do not have the right structure in-situ to raise equity).
The tax relief, which is worth 25% of the total invested spread over five years, is available against either income tax or corporation tax. What this means is the tax relief is available to both individuals and companies (which is pretty, if not totally, unique). The relief is 25% of the value of the investment in the CDFI and is spread over five years, starting with the year in which the investment is made – so 5% per annum for five years.
Take up was estimated to be, as ever, a billion / billions. As we know, this is always a big ask of the social economy: a market that is not based on financial returns, but rather positive social change. The supply of capital to community owned and socially responsible businesses will only be improved if there is demand for that capital.
There’s a straightforward problem here. Identifying new business opportunities with the potential for growth and good returns for investors, that also generate significant value for all stakeholders, is extremely difficult. CITR could help solve this by helping to provide an in-kind return to investors to understand what they are investing in. Could we re-purpose it for community business?
The report shows that CITR has been successful in stimulating significant levels of private investment. This demonstrates an appetite from private investors to invest into disadvantaged communities, albeit below the level initially expected.
The research also found that there is a strong desire from responsible finance enterprise lenders to increase CITR usage and further the impact of the scheme. A number of CDFIs were found to be using CITR as an integral part of their capital raising strategy, with others seriously considering using it in the future. This could mean more money (and on better terms) for community businesses.
A number of recommendations are put forward in the report to achieve this ambition. You can read the full report here.
Ged Devlin, Programmes Manager, Power to Change