Time for helping entrepreneurs long overdue
Small businesses make up over 90pc of the entire enterprise economy of Ireland, with 70pc of the total workforce employed by SMEs.
Support for this sector is long overdue, especially when recent figures show that the amount of new loans to small companies has fallen 82pc since the peak.
The recent Budget was signalled as an entrepreneurial one, and indeed, some helpful inroads have been made.
Among the measures, there is some relief on Capital Gains Tax (CGT) for entrepreneurs; the adjustment to the R&D tax credit will allow additional outsourcing to assist smaller companies; and the tax exemption for certain start-ups has been extended. For investors and entrepreneurs, relief for property investments have been extended. However changes in how unearned income is treated for many business owners and their employees will bring more people into the annual tax filing net.
The current rate of CGT at 33pc has been retained, and an 'entrepreneurial' CGT relief on gains from investments in the period from 1 January 2014 to 31 December 2018 has been introduced. This measure applies where an individual who has made a chargeable gain, and re-invests the proceeds, or part thereof, in assets for use in a new productive trading activity during the period January 1 2014 to December 31, 2018 and subsequently disposes of this investment no earlier than three years after the date of investment. The CGT payable on the disposal of this new investment will be reduced by the lower of the CGT paid by the individual on the previous disposal in the period from January 1, 2010, and 50pc of the CGT due on the disposal of the new investment.
The purpose of this new measure is to encourage individuals to re-invest the proceeds of a previous asset disposal into new productive trading or a new company.
An additional attempt to promote investment into SMEs and start-up companies has been the removal of Employment and Investment Incentive Relief from the Higher Earners Restriction for a three-year period.
The Department of Finance's recently published review of the R&D tax credit regime was very positive. It is a clear indicator to the many foreign multinationals that Ireland is 'open for business' and keen to attract more foreign direct investment.
As a result of this positive review a number of favourable amendments have been made to enhance the current scheme.
The R&D credit currently applies to incremental expenditure with reference to a fixed base period of 2003. The Finance Act 2012 provided that the first €100,000 of qualifying R&D expenditure should be excluded from the incremental calculation. This threshold has now been increased to €200,000. The 2003 base year will ultimately be phased out.
Currently, sub-contracted R&D costs are eligible where they do not exceed 10pc of total costs (or €100,000, where appropriate). The outsourcing limit for sub-contracted R&D costs has now been increased to 15pc. This is aimed at smaller companies that find it difficult to access the required R&D expertise.
As a result of a provision introduced in the Finance Act 2012, companies in receipt of the R&D credit have the option to use a portion of the credit to reward certain key employees by way of a tax-free credit. A number of unspecified 'minor' changes will be made to make this provision more accessible.
This company start-up relief initially introduced in the Finance Act 2011 has been again extended, and will exempt qualifying companies whose corporation tax liabilities do not exceed specified levels (a corporation tax liability for a 12-month accounting period which does not exceed €40,000).
The CGT relief for property owned for seven years and purchased between December 7, 2011 and December 31, 2013 is being extended by one year to include properties bought before 31 December 2014. This should help bring further stability to the investment property market.
On a less positive note for many small businesses and their employees , it was announced that from 1st January 2014, the exemption from PRSI applying to 'normal P60 PAYE employees' aged under 66 years whose only additional income is unearned income, will be abolished.
This means that any unearned income such as rental income, investment income, dividends and interest on deposits and savings will be liable to PRSI at 4pc. These persons will now be regarded as a chargeable person for tax purposes, and will have to file an annual income tax return.
The recent Budget measures have potential to help small businesses this year, with additional incentives and enhancements to current measures. However, there are potential pitfalls for small business owners and employees in with the burden of tax returns to be filed.
Simon Ball is the founder of SB Tax Consultants. www.sbtaxconsultants.com