Small Talk: Incentives are generous for social enterprises although the patchwork of schemes can make the search for help complicated


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The Independent Online

Remember the famous Google motto, “do no evil”? The giant search engine has found it difficult to maintain an unblemished reputation as a force for good as its business has grown, but the principle remains important to Google’s founders. And if nothing else, they’ve proved that the pursuit of profit does not have to be a business’s only goal – capitalism and social conscience do not have to be mutually exclusive.

In their own small way – individually at least – the growing number of social enterprises are making the same case. And while Britain may have yet to produce a technology winner on the scale of Google, it can make a claim to leading the world when it comes to social enterprise. Social enterprises of some form employ more than 2 million and contribute £55bn a year to the UK economy.

This year’s Social Enterprise Development Awards (Seda), which have just been unveiled by banking group Santander, aim to recognise some of the most successful of these organisations, with cash prizes and other support intended to help them develop.

The scheme has supported more than 170 social enterprises with more than £2m of funding. They include business such as Miss Macaroon, a Birmingham-based confectionery business that has won a string of local contracts and used its profits to fund programmes such as training and work placements for ex-offenders and marginalised young people from deprived areas of the city. Its founder, Rosie Ginlay, says that along with financial assistance, support such as legal and financial advice is crucial to social enterprises as they develop.

More of this support is available in the UK than ever before, with a string of organisations, including Santander, making help available to social enterprises that can show they have a viable business model.

The financial assistance on offer is also increasing. Social impact bonds, which enable social enterprises to raise money from the private sector more efficiently, are increasingly popular with investors – one large City fund manager, Threadneedle Investments, has even launched a fund that buys up these instruments.

Then there are organisations such as Big Society Capital, launched by Sir Ronald Cohen, which provides capital funding for social enterprises and charities. It is effectively the world’s first social investment bank.

Individuals making investments in social enterprises can claim generous tax reliefs under rules that came into effect on 6 April. Qualifying investments get 30 per cent upfront tax relief – so it costs just £7,000 to invest £10,000 – and there is no capital gains tax to pay on any profits earned on such investments, as long as they’re held for at least three years. Hold-over relief, enabling investors to defer a capital gains tax bill on profits realised on other investments, is also available.

These are generous incentives. In the venture capital trust sector, which offers investors a similar range of reliefs if they invest in high-risk smaller businesses, they powered more than £400m of fundraising last year.

There’s certainly a demand for investors’ money. The Boston Consulting Group reckons charities and social enterprises will need to raise investment of as much as £1bn a year by 2016, five times as much as they’re getting now. But there is reason to be confident that supply will increase to meet this need. The patchwork of schemes and incentives provided by the Government makes for a complicated fundraising environment for social enterprises, but a potentially rewarding one for those that get to grips with it. Private-sector institutions such as Santander and Threadneedle are also playing an important role – not out of the goodness of their hearts, but because of the potential of social enterprises to deliver profits as well as benefits for the communities they serve.

Higher costs looming with VAT reforms

Small businesses affected by VAT reforms face higher costs and a race to be ready for the new rules, the accountant KPMG says.

From 1 January 2015, businesses selling electronic services such as music downloads, books, apps and games will have to charge VAT on the basis of where the customer is resident – rather than, as currently, where the company itself is based.

The move is expected to net the Treasury as much as £300m a year, as it targets companies based in low-VAT countries supplying British customers, but will involve compliance work for all companies selling online.

“At the very least, they need to ensure that their billing systems can cope,” says Mike Camburn, a KPMG tax partner.  “A full analysis of where the sales are being made, how that will impact the margins in the various countries and how best to handle compliance with the new rules is a good start.”

Many businesses will need new accounting software, better data storage facilities and more external advice, Mr Camburn adds.

‘Wider malaise’ in switching energy firms

The £5.6m fine levied on British Gas last week for incorrectly blocking business customers keen to switch to a rival energy provider is a symptom of a much wider malaise, campaigners for small businesses complain.

 “Our statistics, from looking after 50,000 business energy customers a year, show that British Gas is by no means alone in unfairly blocking switches,” says Nick Heath of Make it Cheaper, which helps companies to change energy firm.

In fact, Mr Heath warns, other companies in the sector are much bigger offenders than British Gas. “The level of invalid objections across the Big Six is much higher than the 5.6 per cent reported in British Gas’s case,” he says.

Ofgem, the energy sector regulator, says it is not currently investigating other energy firms over such practices, but the Federation of Small Businesses is calling for a widening of the forthcoming investigation into the sector by the competition watchdog.

Small business person of the week

Jason Kingsley, Founder of Rebellion

“I founded Rebellion with my brother in 1992: we had both been doing quite high-brow subjects at Oxford University, but we’d always been interested in business and were also into computer games. It was then quite easy to write your own programs and sell them via magazines – so starting our own venture seemed a natural thing to do.

“More than two decades on we’re still going strong – our turnover was £12m last year. Early on we got a small contract with Atari – it made a massive difference.

“We’re still a family-run business with no external investors. Retaining control has also allowed us to follow our passions. We’ve had some big gaming hits over the years, but we’ve also done other things, such as buying the rights to the 2000AD comic, which we’ve managed to turn around – it also led to us working as producers on the Dredd 3D film.

“You do have to be very flexible and adaptable – and also increasingly global. We’re now doing lots of work in countries such as Brazil, which is fascinating.

“I’m also an advocate for our industry – I’m the chairman of the Independent Games Association, and we’ve just had a major success in winning tax relief for British games’ developers.

“Above all I love writing games, and I still spend a great deal of time doing that. We just concentrate on making a profit and putting money back into the business. That leaves me free for the creative work.”