What limit does section 257MA of the Income Tax Act 2007 impose on social enterprises?

Section 257MA caps the total tax-advantaged investment a social enterprise or its qualifying subsidiary may receive within any rolling three-year period. This restriction exists to comply with European Commission de minimis State aid regulations, which limit such aid to no more than €200,000 over three years.

How is the investment limit under section 257MA calculated?

The limit is calculated by aggregating the maximum possible income tax relief under the Social Investment Tax Relief scheme and the maximum possible capital gains tax relief the investment could attract. Actual relief claimed by investors is not used because de minimis rules require the aid amount to be transparent and ascertainable at the point of investment.

Why does section 257MA use maximum potential relief rather than actual relief claimed?

European Commission de minimis State aid rules require that the amount of aid must be transparent and calculable when given. Since actual income tax or capital gains tax relief claimed by investors cannot be known at the time of investment, the legislation uses the maximum potential relief to ensure the aid is ascertainable at that point.

Can you give an example of how the rolling three-year cap works under section 257MA?

If a social enterprise receives a £100,000 qualifying investment in Year 1, the maximum possible income tax relief at 30% (£30,000) plus maximum capital gains tax relief are aggregated against the €200,000 three-year allowance. Further investments in subsequent years are added, and the combined maximum potential reliefs must not breach the threshold.

Income Tax Act 2007 section 257MA

The amount raised from investments potentially eligible for relief

Section 257MA sets a limit on the total amount of tax-advantaged investment that a social enterprise (or its qualifying subsidiary) may receive over any rolling three-year period, based on the maximum relief the investment could potentially attract rather than the relief actually claimed.

There is a cap on the total tax-advantaged investment a social enterprise or its qualifying subsidiary can receive within any rolling three-year period.
The cap exists to comply with European Commission rules on de minimis State aid, which restrict such aid to no more than €200,000 over three years.
The limit is calculated by reference to the maximum possible income tax relief under the Social Investment Tax Relief scheme and the maximum possible capital gains tax relief, not by reference to relief actually claimed.
This approach is required because de minimis aid rules demand that the aid amount be transparent and ascertainable at the point it is given, and actual relief claimed cannot be known at the time of investment.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member