Monday 20 November 2017

Irish tax schemes for start-ups scream out for root-and-branch reform

Ireland is no longer such a very competitive place to start a business, writes Ian Lucey - so let's change all that, before the start-ups wise up and leave

Ian Lucey
Ian Lucey

Ian Lucey

For many years now I have been giving talks on raising money and tax schemes to incubators, accelerators and tech events in the UK and Ireland. To many people it was a novelty that somebody would be so interested in this tax stuff.

But after many of the talks, the comments change to "if I can do that, it's worth a lot of money to our business" and "why doesn't my accountant know that". But start-ups don't start out thinking about tax. Founders must realise - fast - that it fundamentally changes what they can achieve in business.

Recently I have changed my tone when speaking in Ireland. I've always believed in promoting Ireland as a place to start a business but my views have hardened.

Ireland is a great place to live and work, a fantastic place to locate the EMEA headquarters of your hotshot US start-up. The tax breaks, the access to great staff, and the welcoming environment all add up to a no brainer.

However, Ireland is no longer a very competitive place to start a business. If you look at the tax schemes, entrepreneur supports, investor incentives, access to capital, etc., Ireland has fallen a long way behind our nearest neighbours in the UK.

I don't want to tell a negative story about Ireland as a business destination online - but the reality is that we as a start-up community must act together to correct this imbalance.

I'm not an accountant and have no interest in being one. I picked up a lot of these tips as I know almost every accountant in Ireland from my days of looking after Sage's accountants division. I also see how the companies we are investing in throughout the UK have a completely different experience to Ireland.

So I want to show the problems, then give suggested solutions - and finally, outline how you can help.

An incentive to start a business in Ireland

A long while ago Ireland created the Seed Capital Scheme. The idea was that you could get up to your last six years of tax back against any investment you make in your new business. This was a clever way to get people to leave big companies and branch out.

Three years ago the Government cut the number of years you could claim from six to four years. Funnily enough this cut the amount being invested by 33pc.

Eventually they put the number of years for seed capital back up from four to six again.

An incentive to get people to invest in my business

This one is killing Ireland. Investors used to get 41pc of what they invested back when they put money into a company.

Three years ago the Government changed this and said you can get 30pc back now and 11pc in three years if their company is still in business. The result? A 66pc drop in the amount invested in the last three years. This is crucifying us!

In the UK an investor gets back up to 84pc.

Not only that. If the investment works out, an Irish investor pays 33pc capital gains tax.

In the UK they pay nothing.

If I'm a UK start-up my investment product is much more appealing. What's more, if I'm a financial advisor in the UK I would actively seek out start-ups because clients want the tax breaks. In Ireland, financial advisors no longer sell BES (or EIIS, as it's now called). It's just not as good when you view a product versus a pension.

As start-ups we need to get the Government to give us the product to sell to the doctors, dentists or any of the other cash-rich people in society.

An incentive to do R&D

Governments love R&D. Why? New products mean new jobs which means new taxes. In the UK if I spend money on R&D I get the tax back within three weeks of putting in the forms. In Ireland they pay in three instalments over three years.

This means that an Irish company that manages to raise money to get started - and then creates those jobs that the Government loves - will be put at a huge competitive disadvantage internationally. Changing this rule costs the Government nothing, apart from the cashflow hit.

The Apples of the world can wait three years - but smaller companies should get this money immediately. We suggest that the first €150,000 is paid back immediately and the rest spread over three years.

An incentive to sell my business

If I sell a business I own in the UK I can pay as little as 10pc. In Ireland I will pay 33pc. If Ireland wants to build a network of angel investors we have to make it appealing to sell all or part of their business. Right now it's not worth giving the Government 33pc.

We want people selling and reinvesting. This is not happening.

Allow failure

What do you get for having a go in Ireland, for trying to create jobs and create something new? No dole. No supports. No safety net.

So what can you do?

The Government is listening and have opened a public consultation process. They expect and will get formal responses from industry bodies such as the ISA, the IIA, the Start-up Commissioner and many more.

What we really need is for you to submit your views. Submissions from SMEs and individuals are so much more powerful. Tell them your war stories. Tell them how you have raised money. Tell them how many jobs you would create if you had capital or if you got your R&D money back now.

Tell them if you are thinking of leaving Ireland. Tell them if you have left already. Emails to

Let us try and make a difference to start-ups and to budding entrepreneurs that will be in need of this in years to come.

Sunday Indo Business

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