Accountants in Dublin – and all over Ireland – are still picking apart the pieces of the latest Finance Bill, and assessing its implications for business. As part of our ongoing series explaining the complex legislation, this week, we will be exploring the impact of the bill on business taxation.
Employment & Incentive Initiative (EII)
The bill legislates for the extension of the previously-introduced Employment Investment Incentice (EII). This tax scheme, which has replaced the Business Expansion Scheme, provides tax relief for investment in certain corporate trades. Investors in a company can gain relief on an investment of up to €10,000,000 in any one company or group of companies, or €2,500,000 in any twelve-month period. Individual investors, meanwhile, can obtain income tax relief on investments up to a maximum of €150,000 each year. Relief is given at an initial rate of 30%, while a further 11% relief is available when it’s proven either that employment levels have increased at the company over a three-year period, or that the company used the capital raised for research and development. The continuation of the scheme, of course, depends on approval from the European Commission. Hotels, guesthouses and self catering accommodation that meet the other criteria of EII will be allowed to qualify on a temporary basis – this will be reviewed after two years.
Improved Tax Credits
The Finance Bill also enhances the Research & Development (R&D) tax credit, increasing the eligible expenditure for the scheme from €100,000 to €200,000. The bill also reduced the amount of working time that the “key employee” covered by the scheme must spend on R&D from 75% to 50% in an effort to assist SMEs.
The bill extends the useful Corporation Tax exemption scheme for start-up companies, allowing any unused credit from the first three years of trading to be carried forward and used in subsequent years. This could be a major boon for firms that swing into profitability after a fallow start-up period, even though the relief is still capped to the amount of Employer PRSI paid in a year.
A new form of venture, Real Estate Investment Trusts, are being introduced in the legislation. these listed companies will be exempt from corporation tax on income and gains from rental investment property, provided the profits are distributed, in a bid to attract foreign investment to the property market.
Life has also become a bit easier for operators of close companies. Close companies can now retain €2,000 without giving rise to a close company surcharge, up from €635 under old regulations. This is designed to assist with the cash-flow of smaller ventures.
A few changes have been made to the VAT code that have relevance for some business people. The bill confirms VAT obligations for building or developed land transfers from the owner to the receiver for the period of their appointment. Also, the bill specifies that a receiver or liquidator will be the accountable person for VAT on supplies of taxable services – such as operating a hotel or making a taxable letting – that are made by the business.
More significantly, the cash receipts basis threshold for SMEs will rise to €1.25m (from €1m) from May 1 of this year. This small change will make a significant difference to many companies that may be experiencing growth, but aren’t in a cash-flow position to move away from paying VAT on a cash receipts basis.
As you can see, there’s no massive giveaway in the latest Finance Bill, but a few well thought out tweaks should make life easier for several entrepreneurs. If you want to ensure that you’re capitalising on positive changes in legislation, we’d recommend talking to us – we can set up an initial, no obligation consultation to find out about your business and its needs.