Investors who receive the reliefs are able to claim a percentage of the amount they’ve just invested against their income tax liability.
There are three types of tax relief:
Seed Enterprise Investment Scheme relief is worth 50% to the investor, so someone investing £1000 will get £300 off their tax bill. Businesses can offer relief on up to £150,000 of investment,but as it is restricted to start-ups undertaking a new trade, most sports clubs won't qualify.
Enterprise Investment Scheme relief is worth 30% to the investor, so someone investing £1000 will get £300 off their tax bill. Sports clubs will only be able to claim this if they are seven years old or younger; if they are eligible, they can offer relief on up to £5m of investment. If they are older than seven years, they have to be raising in investment a sum equivalent to half of their average turnover for the previous five years (to work this out, add your last five years' turnover and divide it by ten!).
Finally, (and more encouragingly ) Social Investment Tax Relief off a 30% return to investors who lend or buy shares in an eligible business (a charity, CIC or asset-locked CBS). There's no age limit on this, though businesses older than seven years are restricted to offering relief on around £300,000 of investment, but younger organisations can offer it on £1.5m of investment.
Clubs can seek Advance Assurance from HMRC that investment in the club is eligible for a tax relief
Alternatively, rather than getting them to feel better at having given you £1000 by the thought of getting £300 back from HMRC, you could use it to incentivise them to invest more.
For example, had someone already committed to invest £1000, they can invest £1420 for the same net cash loss to them after tax reliefs kick in; they wouldn’t have spent a penny more investing the extra amount, but the club would have gotten 42% more.
Clubs can seek Advance Assurance from HMRC that investment in the club is eligible for a tax relief, which can give confidence to potential investors and incentivise them to invest more. Depending on the relief you seek, it will take around six weeks if you are applying for Advance Assurance for EIS or SEIS, and up to 16 weeks if you need to secure Social Investment Tax Relief advance assurance.
Under new rules, an application needs to also include details of individuals who have already said to you that they are going to invest when the time comes; you don't need every investor to do this, but do need to show you have people who committed to invest at least 10% of the total investment you are seeking.
Some things to think about:
- Tax reliefs have been difficult to claim via PAYE but tax codes can now be provided. At present, it tends to be a tool to motivate High Net Worth Individuals who might have significant tax liabilities. That said, those same individuals are also the likeliest candidates to invest significantly in your club and indeed might already be sponsors or benefactors.
- Tax reliefs require all the conditions in place at the start of the investment to be in place for at least three years. If the club inadvertently changes things significantly in that time and becomes an ineligible body, HMRC can reclaim the tax relief already awarded, so cubs have a responsibility to follow through on their commitments for three years.
- The rules are fairly complicated for tax reliefs, and you are better off seeking some help from a business advisor. One big issue to flag up is that lots of sports clubs will face a hurdle if they are seeking to use the investment to develop facilities which can be hired to the public. HMRC class hiring facilities - even if only for an hour - to be 'leasing' and so if you are looking to bring in more than 20% of your turnover through hiring, you will not be eligible. That is a big issue when so many business plans for facility development will include precisely this type of use as part of necessary 'sweating' of the club's assets.