We remain in the widest and deepest recession seen for decades, with stock markets in turmoil and the property market still on its knees.
It might seem strange, then, to regard now as a very positive time to trigger the entrepreneurial gene and start your own business. But with falling rents and consumers looking for ways to save money, the market is ripe for a niche start-up that serves a particular need.
From a tax viewpoint, exemption rules for start-ups can be very advantageous.
Tax law provides relief from corporation tax for new start-up companies as long as certain requirements are met. The Finance Act 2008 first brought about this exemption, and it has been extended and modified in successive Budgets.
Relief from corporation tax in the first three years of operation applies to firms:
• Incorporated on or after October 14, 2008.
• That commence a qualifying trade in 2012-2014, (or commenced 2008-2011 inclusive).
• 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 Finance Act 2011 confirmed that the exemption for start-up companies from corporation tax was to be extended to companies which commence a new trade in 2011.
The relief available for start-ups in 2011 onwards is now linked to the amount of employer's PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000.
Credit is also given for any employer's PRSI exempted under the Employer Job (PRSI) Incentive Scheme in respect of a company's employees in determining the amount of corporation tax relief available to the company.
The linking of the relief to the amount of employer's PRSI paid per employee is intended to target the relief at companies generating employment.
It is important to note that companies which set up and commenced their qualifying trade in 2009 or in 2010 will be able to obtain relief on the previous (ie, pre-Finance Act 2011) basis for profits earned in accounting periods commencing before 2011.
Full relief is available to a new company in any of its first three years of operation where its total corporation tax liability for a 12-month accounting period does not exceed €40,000.
A qualifying new company with a corporation tax liability up to this amount will have its corporation tax liability reduced to nil. The maximum relief over three years is €120,000 (€100,000 for companies engaged in the transport sector).
There is a sliding scale of marginal relief where the corporation tax liability for a 12-month accounting period exceeds €40,000 but is less than €60,000.
A claim for relief must be made on the Corporation Tax (CTT1 Form). It must specify the amount of the relief being claimed for an accounting period. The relief must be within the limits set out in the legislation.
The recession has spurred on many individuals to set up their own companies.
With this tax exemption for new start-up companies, there is a very large incentive to go and set up that business many have always wanted to.
Simon Ball is the founder of SB Tax Consultants www.sbtaxconsultants.com simon@sbtaxconsultants. com