14 Oct 2016 | 01.57 pm
Budget 2017: Business Tax
Share incentive scheme for SMEs promised in Budget 2018
14 Oct 2016 | 01.57 pm
KPMG Partners Anna Scally (pictured) and Andrew Gallagher outline the adjustments to tax measures that benefit entrepreneurs
Start Your Own Business
The minister announced the extension of the Start Your Own Business scheme for a further two years to 31 December 2018. The scheme, which was introduced in Finance (No.2) Act 2013, provides qualifying individuals relief from income tax up to a maximum of €40,000 per annum for a period of two years. To qualify for the relief, the individual must have been unemployed for twelve months or more and in receipt of at least one of certain social welfare payments prior to establishing the business. The relief applies to individuals setting up newly established, unincorporated businesses.
Entrepreneurs CGT Relief
A reduced rate of capital gains tax of 20% was introduced in Finance Act 2015 with effect from 1 January 2016 to disposals of the whole or part of a qualifying trade or business owned by a qualifying individual for at least three years before disposal.
An individual will be considered a qualifying individual for the purposes of the relief if they have worked as a director or employee of the company for three of the five years prior to disposal. Qualifying assets for the purposes of the relief include shares in or assets of any company other than those involved in certain excluded activities, such as dealing in shares, securities, commodities, land or property.
In addition, a disposal of shares will only qualify to the extent the individual holds 5% or more of the ordinary share capital.
The applicable rate of capital gains tax is being reduced from 20% to 10%. All other aspects of the relief remain unchanged including the lifetime limit of €1 million in chargeable gains to which the relief can apply. The minister has signalled his intention to review the €1 million lifetime limit in future Budgets.
While the reduction in the rate is a welcome improvement, it is disappointing that the lifetime limit has not been increased, particularly to ensure the relief is competitive with that currently available in the UK, where the total lifetime limit is £10 million.
Corporation Tax Start-up Relief
This relief reduces corporation tax payable on the profits of a new trade and gains on disposal of any assets used for the purposes of the new trade in the first three years of trading. It was extended by three years in Finance Act 2015 to trades which commence on or before 31 December 2018.
The reduction in corporation tax is linked to the amount of employer PRSI paid in respect of each employee, subject to a maximum of €5,000 per employee, and is only available where the company’s annual corporation tax liability on qualifying income and gains does not exceed €40,000 (marginal relief is available where the corporation tax liability is between €40,000 and €60,000).
While no further changes or extensions to the relief have been announced, the Government has confirmed its commitment to the relief in its Update on Ireland’s International Tax Strategy 2016 paper stating that it plays an important role in assisting small businesses in starting, growing and creating jobs.
Share Based Incentive Scheme For SMEs
Following a significant number of submissions in response to the public consultation and review of share-based remuneration carried out by the Department of Finance, the minister has signalled his intention to introduce a new share-based incentive scheme specifically aimed at Small and Medium Enterprises (SMEs) in Budget 2018.
The new scheme will be subject to EU State-aid approval and engagement with the Commission will take place in advance of the next Budget to ensure compliance with State-aid rules. While it would have been preferable for details to have been announced in the Budget, any improvements to the taxation of share-based remuneration will, nevertheless, be welcome.
Tackling Tax Evasion
The minister used his Budget speech to announce a comprehensive programme of targeted compliance interventions against offshore tax evasion. He prefaced his announcement with a reference to the release of the Panama Papers which were well publicised earlier this year and attracted much public disapprobation and denunciation.
The minister announced the following initiatives in this area:
- The application of advanced analytics techniques, applied to various data sources including data newly available through FATCA, EU and OECD exchange of information programmes;
- The introduction of a new strict liability offence for failure to return details of offshore accounts or other offshore assets; and
- The denial of the opportunity, from 1 May 2017, to make a “qualifying disclosure” in the area of offshore accounts and assets, therefore denying access to the reduced penalties that can otherwise arise from such qualifying disclosures. The timing suggests a final opportunity for those illegally using offshore accounts or structures to regularise their affairs before summer of next year.
These measures will be legislated for in the Finance Bill. In addition, the minister announced the allocation of an additional €5 million to the Revenue Commissioners for investment in systems and equipment, and the recruitment of 50 additional staff.