The draft guidance covers the background to the new tax rules, the investment and investor requirements, how a social enterprise qualifies, and the procedures for using the scheme. The legislation governing SITR will become law when the Finance Bill receives Royal Assent, expected to be in July 2014.

Investments in social enterprises must be in newly issued shares or new qualifying debt investments and must have been paid up in full, and in cash, at the time the investment is made. A social enterprise means a community interest company, a community benefit society or a charity which must be unquoted at the time of the investment. It must have fewer than 500 full-time equivalent employees and no more than £15m gross assets immediately before the investment and £16m immediately after the investment.

There must be no arrangements to protect the investor from the normal risks associated with investing, and no arrangements for the investment to be sold at the end of the relevant period. There must also be no arrangements at the time of the investment for either the cessation of the social enterprise’s trade or the disposal of a substantial amount of its assets.

During the period from one year before the investment to the third anniversary of the investment, investors must not own more than 30% of the social enterprise’s ordinary share capital, loan capital or voting rights. The investment of ‘associates’ are taken into account in arriving at the 30% figure, who include business partners, trustees of any settlement of which the investor is a settlor or beneficiary, and relatives.

Within 28 months of the date of the relevant investment, all the monies raised from that investment must be employed for the purposes of the chosen trade, carried on either by the social enterprise itself or by a 90% subsidiary of the social enterprise which is itself a social enterprise. Failure to comply with this condition means investors will lose their tax relief. Investors cannot claim tax relief until the social enterprise has sent in a Compliance Statement and they have received a Compliance Certificate.

The SITR guidance is here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/298220/Social_investment_tax_relief__SITR__draft_guidance.pdf