independent

Monday 21 April 2014

Budget offers little in real reform for SMES

MORE COULD HAVE BEEN DONE FOR SMALL FIRMS

WHILE most budget 2013 reaction has been focussed on the swinging cuts and indirect tax hikes that will punish many families and workers the business community, especially those representing small and medium businesses, gave a relatively warm welcome to budget measures which the government claim will be of great benefit to small enterprise.

At the outset of its budget announcement the Government went to great pains to emphasise the benefits small and medium business can expect as part of the 2013 Budget. However behind the government's rhetoric the features of the 10 Point Tax Reform Plan contain only a few new ideas and are likely to lead to only modest improvements in the fortunes of the companies it's designed to aid.

The first item of the 10 point plan is what Michael Noonan labelled as a "Reform" of the 3 year corporation tax relief for start-up companies

While the initiative is welcome calling it reform is a bit of a stretch.

What they are proposing is to allow companies to carry forward unused credits meaning that if a company makes a loss in the first year it can carry forward credits to subsequent years. Welcome yes, but the relief is quite restrictive and experience has shown it has had little practical value for many companies.

Point five of the plan involves an extension of Foreign Earnings Deduction to certain African countries. Although the FED was restricted to the so called BRIC nations an extension is unlikely to be of much real benefit to small and medium companies as it is mainly much larger companies who trade in the nations covered by the extension.

A major plank of the plan is the extension of the Employment and Investment Scheme to 2020. The scheme has proved successful but to make it a major aspect of last week's announcement, and indeed to advertise it as a new development, is disingenuous as there was no indication of any kind that the scheme was due to stop anytime in the near future.

The extension of young farmers stock relief is a similar situation in that there was no indication that it was to be scrapped either.

Minister Noonan also announced he was amending the close company surcharge a move welcomed by many business lobby groups.

The close company surcharge is a surcharge on undistributed after tax profits on estate and investment income and on professional income.

Again this is unlikely to be of any huge or lasting benefit to most companies as all it means is an extra €1,400 of after tax income can be re-invested in the company without attracting a charge. Useful no doubt, but not enough of a sum to help grow, or indeed save, most small or medium sized businesses.

One of the positive features of the plan is an increase of amount of expenditure eligible for the Research and Development credit

This has been doubled to €200,000 and is an important provision but there is a view that it will need to be coupled with an education programme to inform small businesses how to avail of it.

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