Finance Bill 2019
The Department of Finance published the Finance Bill today which included a number of provisions to support domestic entrepreneurship; however it cannot be said that the provisions introduced would be commensurate with any material changes which would greatly enhance the businesses driven by our entrepreneurs. As announced in the Budget, changes shall be made to a number of schemes of relevance to our domestic entrepreneurs such as the research & development regime and a newly reformed EII scheme.
The research and development tax credit system has been reformed to include the following detailed measures;
- The R&D tax credit has increased from 25% to 30%
- The addition of an enhanced method to calculate the payable element of the R&D tax credit, based on twice the current year payroll liabilities.
- Pre trading research and development expenditure shall now qualify for an R&D tax credit. This credit is limited to offsets or repayments calculated by reference to payroll tax (PAYE and USC) and VAT liabilities for the same period.
- The allowable limit on R&D expenditure outsourced to universities or institutes of higher education has been increased from 5% to 15%.
- Capital expenditure on buildings or structures, which are used for scientific research, can qualify for an allowance noting that where a company may qualify for a scientific capital allowance and the R&D tax credit, then both reliefs cannot be claimed in respect of the same expenditure.
- The following anti-avoidance provisions will apply:
- Grants funded by any State Body and/or the European Union must be deducted from qualifying R&D expenditure.
- Where a payable amount or amount surrendered to a key employee is later withdrawn, then it is not permissible to use any offset of losses or credits to shelter the clawback of such an amount.
- The penalty application in respect of an R&D tax credit over claim is aligned to the penalty procedures for other credit over claims.
- Companies which outsource to third parties are obliged to notify the third parties in advance of, or on the day of, payment, if a given company intends to make a claim for the R&D tax credit.
Last year’s Finance Bill introduced a newly revamped Employment and Investment Incentive (EII) which has received another makeover in last week’s budget. The enhancements to the initiative which were announced in Budget 2020 seek to incentivise entrepreneurs and encourage investment in SMEs. From a cash flow perspective, investors will warmly receive the changes made to the timing of the relief which has altered to the provision of a full relief being made available in the first year of investment (as opposed to an initial relief of the qualifying investment made available in the tax year in which the investment is made, with a further relief given after Year 3 subject to certain conditions.) This takes effect from 8 October 2019.
The additional changes include;
- From 2020, a maximum investment relief amount allowed has been increased from €150,000 to €250,000 in respect of a four year investment and €500,000, where the length of the investment is 10 years.
- Further technical amendments have been provided under Finance Bill 2019, the purpose of which is to ensure that the conditions in relation to investments made prior to Budget day will continue to apply and, secondly, that the anti-avoidance clawback provisions also apply to investments to be held for ten years.
- Managers of a designated fund are obliged to return details of holdings of eligible shares, within 30 days of receiving the statement of qualification from a qualifying company.
- Further, where a company buys back, redeems or repays any shareholder for shares in the company using EII investments within the compliance period, then there will be a reduction in the relief granted to all EII investors as a result.
The changes to the research and development tax credit are specially aimed at assisting smaller companies and serve to promote activity in the indigenous sector. Further, we welcome the changes to the EII scheme which have enhanced the relief from its reformed state in last year’s Finance Bill. Providing for a full tax relief in the year of investment will be well received by eligible investors along with the increased annual investment limit and the incentives for long term investors.