Community Investment Tax Relief
Private investment for community finance
The Community Investment Tax Relief (CITR) scheme was devised to stimulate the flow of private finance to support enterprise in the UK’s deprived communities. Established under the Finance Act 2002 and managed by HM Revenue & Customs and the Department for Business, Innovation & Skills, CITR provides a tax incentive to investors in accredited CDFIs.
Investments may be in the form of loans, equity investment (either shares or securities) or deposits (for those few CDFIs that are banks). Investment raised is then on-lent by the CDFIs to qualifying enterprises in designated deprived communities.
CITR is available to any individual or company with a UK tax liability investing in an accredited CDFI, where the investment is held for at least five years. The taxpayer receives a relief to offset against their tax liability of 5% of the amount invested per annum, in addition to any interest or dividend paid by the CDFI.
Use of the scheme
Although the ethos behind CITR – providing the private sector and citizens an incentive to invest in CDFIs – is sound and robust, take-up has been quite limited, in terms of investment raised, the type of investors investing and the number of CDFIs actively participating. Only a minority of CDFIs are actually accredited to use CITR and the majority of total funds have been raised by only a few CDFIs.
In 2012, 15 CDFIs were accredited to use CITR, down from a high 23 in 2005; however only 11 raised any funds.
The expectation and the investment target set by Government was CITR would raise £200m per annum, mostly in the form of investments by banks and large corporations.
Although a few relatively minor improvements were adopted in April 2012, none are expected to enable significant improvement in scheme utility and therefore unlikely to increase investment levels. New European Union de minimis”state aid” structures will come into force in April 2013, the effect of which will be, if anything, to hamper future investment.
CITR investment raised
CDFA members reported raising £8.7m in 2012 using CITR and £86m since 2003, with an average of £10m raised per year, against an expectation of £200m being raised per year: £2bn a decade.
Sources of CITR investment
The majority of the amount raised – 87% – since 2002, has been by deposit-taking CDFI banks able to accept investments as deposits guaranteed by the Financial Services Compensation Scheme. Thirteen per cent of the total investment has been from CDFIs applying CITR to bank loans. Virtually no investment has come from corporate investors.
Although guaranteed deposit taking has raised the most investment, only two CDFIs are FSA authorised banks. ‘Typical’ – non-bank – CDFIs find it difficult to attract investors due to a variety of challenges and unforeseen obstacles inherent in the scheme. The scheme has clearly so far failed to engage the corporate sector or high-net-worth philanthropists.
New regulations regarding CITR came into force on 1 April 2013. The key changes in the new Material Concerning the Accreditation of CDFIs include:
Removal of the requirement to apply for re-accreditation every three years
A signed declaration annual return replacing CITR reporting spreadsheets
A requirement to calculate and administer de minimis state aid
An updating of the Indices of Deprivation areas in determining which Local Authorities and Lower Level Super Output Areas (LSOAs) are Case 1 and Case 2.
Social Investment Tax Relief
In September 2013 we submitted a response to the government’s consultation on the proposed Social Investment Tax Relief. The introduction of such a relief, and its fit with CITR, is of great significance to many of our members. Our response can be downloaded here.