Tax and Entrepreneurship
There was very little in Budget 2018 for Irish entrepreneurs. No changes were made to the CGT entrepreneur’s relief. There was a small increase of €200 in the earned income credit to €1,150. However there is still a mismatch between this and the employee equivalent credit which is currently €1,650.
As we face into a post Brexit world, SME’s will likely need to consider expanding their business into European and international markets other than the UK. In order to assist SME’s and food businesses which will be heavily impacted by Brexit, the Minister has announced a loan scheme of up to €300m to assist these companies in managing their working capital requirements.
A new Key Employee Engagement Programme (KEEP) has been introduced to assist SME’s attract and retain top talent. Where employees are given share options as part of their remuneration package, any gains arising to employees on the exercise of these options will be liable to CGT on a disposal of shares rather than being subject to income tax, USC and PRSI on exercise of their share options as is currently the case.
The Key Employee Engagement Programme will be welcomed by entrepreneurs as a measure to incentivise their key employees. Up to now, the exercise of share options by employees of SME’s created potential cash flow issues as the employee had to fund the tax on the exercise of their share options out of after tax income. For employees of SME’s there is no market to dispose of part of their shareholding, in contrast to a key executive of a large multinational who could sell part of their shares to fund the tax payable on exercise of the options,
The Brexit Loan Scheme should be of assistance to a number of SME’s to assist them in expanding into foreign markets. However this is a funding measure and does not provide any tax incentives to entrepreneurs who have taken significant risks to grow their business and create employment. It is disappointing that the Minister for Finance did not make any further enhancement to the CGT entrepreneur relief that was originally introduced in Finance Act 2015. Given that we are at a time where non-Irish entrepreneurs may be considering their location options post Brexit, this would appear to be a missed opportunity for Ireland. Since the introduction of the relief, the general view would appear to be that the relief does not do enough to incentivise Irish entrepreneurs. Previous Department of Finance Budget commentary itself positioned a change to entrepreneur relief to bring the relief “more in line with the equivalent relief in place in the UK”. In the UK gains of up to £10 million are taxed at a 10% rate. Therefore with only the first €1m of gains qualifying for a reduced 10% rate of CGT in Ireland, there still remains a significant disparity between the Irish and UK reliefs.
The recent Deloitte survey highlights how the high marginal tax rate of up to 55% is a major barrier to Irish entrepreneurship as it penalises individuals from accessing cash to enjoy the fruits of their labour and risk-taking. It is disappointing that “creative measures” are not being considered by our Government to encourage entrepreneurship in this country.