Social Enterprise - From a Tax Perspective

What is a social enterprise?

A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximize profit for shareholders and owners. Social enterprises account for 5% of all businesses with employees; there are 62,000 social enterprises in the UK. They contribute £8.4bn per annum to the UK economy, which equates to almost 1% of annual GDP.

Business structures

Choice of legal form can have a significant bearing upon many aspects of an enterprise’s activity. Taxation status, governance and management and external regulation and scrutiny vary significantly between the different legal forms that may be adopted by businesses. The most common legal forms for a social enterprise are Partnership, Limited Liability Partnership, Company Limited by Guarantee or Shares or Industrial and Provident Society. In addition to choice of legal form, many social enterprises also register a specific community oriented status which provides assurance to those with whom they deal but may also add further regulatory requirements.

Although social enterprise is at heart a very different proposition from charity, many charities have developed social enterprise as part of their work and a number of social enterprises have adopted charitable status to take advantage of tax concessions (see below). Limited companies which operate social enterprises can additionally register as Community Interest Companies - a form especially designed for social enterprise which requires companies to restrict distributions of profit and capital and take on an “asset lock” guaranteeing that the assets will be used for community benefit in perpetuity.

Read the full pdf Insight to find out more about the advantages and disadvantages of the different options.