Budget 2022 tax and entrepreneurship

Perspectives

Entrepreneurship 

Budget 2023

Key measures

Entrepreneurs and the businesses they invest in will be impacted by a number of key measures announced in Budget 2023.

One of the key measures aimed to support Irish indigenous businesses in this “cost-of-living” budget is the introduction of the Temporary Business Energy Support Scheme to help business with rising energy costs over the winter months. The scheme is open to businesses that carry on a Case I trade provided they are tax compliant and have experienced a significant increase in energy costs. The scheme will work by comparing the average unit price for the relevant bill period in 2022 with average unit price in the corresponding period in 2021. If increase in average unit price is more than 50% then the business is eligible for the scheme. The level of support available is calculated as 40% of the amount of the increase in average unit price. There will be a cap of €10,000 per month and there will also be an overall cap which we expect will be announced in the Finance Bill. This scheme is subject to State Aid approval from the EU.

Among other measures that will impact Irish indigenous businesses (and their investors) include an extension to the Knowledge Development Box regime for a further four years as well as the extension to the Film Corporation Tax Credit regime to the end of 2028. The Minister announced that amendments will be made to the R&D tax credit regime with respect to how repayments are made under the scheme. Currently the R&D tax credit is firstly offset against current and prior year corporation tax liabilities followed by repayment over three instalments. Under today’s announcement this will be changed to a new fixed three-year payment system. Going forward, a company will have an option to call for payment of their eligible R&D tax credit or to request for it to be offset against other tax liabilities, and existing caps on the payable element of the credit are being removed. Transitional measures will be introduced for those that already engaged in R&D activities and claiming the credit.

The Key Employee Engagement Programme is to be extended to the end of 2025. A number of other positive changes are being introduced as well including facilitating the buy-back of KEEP shares by the issuing company and increasing the company limit to €6 million. A number of changes announced in Finance Bill 2019 will now be brought into effect with respect to group structures and qualifying employees.

Who will be affected?

The introduction of the temporary energy support scheme will no doubt be of benefit to many Irish indigenous businesses struggling with rising costs. The increase in the standard rate band should also help these businesses retain staff without having to fund the cost of rising inflation themselves through wage increases. Enhancements to the repayable element of the R&D tax credit scheme should enable Irish businesses access cash refunds in a more efficient manner. Disappointingly there is little if anything in the budget that positively impacts entrepreneurs and encourages them to invest in and grow the Irish indigenous sector.

Our view

There is no doubt that the focus of Budget 2023 was on the rising cost of living for individuals in the country. However, the Minister also reiterated the importance of the Irish domestic economy and the Irish businesses that provide significant employment. Previous Budgets have delivered relatively little in the way of substantive support for entrepreneurs, a trend we have unfortunately seen continued in this year’s Budget. Irish businesses dominate the Irish economic landscape and this coupled with an over-reliance on tax receipts from multinationals makes it imperative from an entrepreneurial perspective that our tax system incentivises innovation and encourages longevity.

There is no doubt that a number of announcements included in Budget 2023 will impact Irish indigenous businesses in a positive way. We welcome these changes and while we may see further changes and enhancements outlined in the upcoming Finance Bill, it was disappointing to see no specific tax measures to unlock increased funding into scaling Irish businesses given the need for capital in these businesses. Other measures which were included in the Deloitte pre Budget submission and which could have made an impact include tapered capital gains tax relief to encourage entrepreneurs to stay the course and scale business internationally or the introduction of a lower rate of tax on interest earned on capital lent to scaling Irish businesses

Finance Bill 2022: Key Provisions

Temporary Energy Business Support Scheme  

  • On Budget day it was announced that this scheme would apply to those carrying on a Case I trade. The Finance Bill clarifies that the scheme will also apply to those carrying out a Case II profession.
  • The Finance Bill also provides that the scheme should apply to new business and eligibility for relief will be calculated using a deemed unit price provided by the Sustainable Energy Authority of Ireland (as such businesses would not have a prior year comparative). 
  • On Budget day a monthly cap of €10,000 was announced. However, the Finance Bill provides for increased relief for businesses that operate in more than one location and have multiple meter point reference numbers. In those cases relief will increase to a maximum of €30,000.
  • A claim for relief must be made within 4 months of the end of the relevant claim period.
  • On Budget day it was announced that the scheme would operate until 28 February 2023. However, the Finance Bill provides that the scheme will run until 31 December 2022 but allows for it to be extended by Ministerial Order subject to certain conditions. The extension cannot run later than 30 April 2023. 

Changes to EIIS

  • Finance Bill has announced a change to the definition of an “associate” for the purposes of the EIIS rules.
  • Previously relief would not be available under EIIS rules where an individual or an associate of the individual was considered connected with the company in which it was investing in.
  • The definition of associate includes a partner of the individual. The Finance Bill amends this definition to provide an exception to the connected persons provisions in respect of persons who are partners solely as a result of being partners in a partnership constituting a qualifying investment fund within the meaning of Part 16.
  • The Finance Bill also provides for amendments to the Statement of Qualification that must be submitted to reflect the 2019 amendment to the rules allowing full relief in the year of investment.

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