The first measures
announced by the Minister in Budget 2013 were a series of initiatives designed
to help the SME sector – the 10 Point Tax Reform Plan. The importance of the sector was highlighted
by figures set out in an accompanying paper from the Department of Finance. The paper shows that 99% of businesses in
Ireland are SMEs and they account for almost 70% of people employed in the
State, with 64% of private sector workers being employed by indigenous
non-exporting firms and 56% by indigenous non-exporting SMEs.
Without going into any
detail, the 10 points cover positive changes and extensions to the 3-year
corporation tax relief for start-ups, the close company surcharge on
undistributed income, the R&D tax credit, the VAT cash receipts basis
threshold, the foreign earnings deduction, the EII scheme and stock relief and
CGT for farmers, as well as reviews of venture fund CGT and reducing the
compliance burden on micro enterprises.
None of these changes is particularly momentous in itself, and that was
acknowledged by the Minister, but it is hoped that the cumulative effect will
help drive employment growth in the sector. Beyond the 10 Point
Plan, there were various announcements, including:
- The by now usual “100 per cent” commitment to the 12.5% corporation tax rate.
- The extension of film relief to 2020. Interestingly, though, it was indicated that from 2016 access to it may be closed to retail investors, which would mean the death of the various film schemes that have been promoted in recent years. Quite how it will operate beyond 2016 is not yet clear.
- The removal of “top slicing relief” on “termination” or ex gratia lump sum payments for employees on the portion of that payment which is in excess of €200,000. This is a very valuable relief by which the taxable element of any such payment is subject to the taxpayer’s average tax rate over the previous 3 years. Unfortunately, this relief is being abolished for sums in excess of €200,000, so that the excess will be taxed at the marginal rate, which will be considerably in excess of the average.
However, and this could be a useful planning point for advisers and their clients to consider, the change does not take effect until 1stJanuary 2013, giving a few weeks for appropriate action to be taken to avail of top slicing relief before it is restricted. It is worth noting that while such payments are usually made when an employment contract is being terminated, it is also available for major changes in the nature of the employment.
There were announcements of other measures, including various funding supports for SMEs and other businesses, as well as the usual hike in excise taxes, but in general the feeling is that an attempt has been made, within the tight constraints within which the government feels obliged to act, to help businesses. Whether they will have anything other than limited value remains to be seen.
- The by now usual “100 per cent” commitment to the 12.5% corporation tax rate.
- The extension of film relief to 2020. Interestingly, though, it was indicated that from 2016 access to it may be closed to retail investors, which would mean the death of the various film schemes that have been promoted in recent years. Quite how it will operate beyond 2016 is not yet clear.
- The removal of “top slicing relief” on “termination” or ex gratia lump sum payments for employees on the portion of that payment which is in excess of €200,000. This is a very valuable relief by which the taxable element of any such payment is subject to the taxpayer’s average tax rate over the previous 3 years. Unfortunately, this relief is being abolished for sums in excess of €200,000, so that the excess will be taxed at the marginal rate, which will be considerably in excess of the average.
However, and this could be a useful planning point for advisers and their clients to consider, the change does not take effect until 1stJanuary 2013, giving a few weeks for appropriate action to be taken to avail of top slicing relief before it is restricted. It is worth noting that while such payments are usually made when an employment contract is being terminated, it is also available for major changes in the nature of the employment.
There were announcements of other measures, including various funding supports for SMEs and other businesses, as well as the usual hike in excise taxes, but in general the feeling is that an attempt has been made, within the tight constraints within which the government feels obliged to act, to help businesses. Whether they will have anything other than limited value remains to be seen.
Director
ITC Consulting
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