Thursday, 5 July 2012
A broad range of tax reliefs and incentives are available to assist businesses. While some are specific to small or start-up businesses, the full range of reliefs and incentives are available to them. Some of specific provisions available are as follows. The employment and investment incentive is available to the majority of trades. Under this scheme, companies can raise up to €2.5 million per annum, subject to a lifetime limit of €10 million. Investors will receive an initial 30% relief on their investment, with the possibility of a further 11% subject to certain conditions.
The seed capital scheme is available to certain individuals who start a new business venture. Income tax paid over the previous six years can be refunded, subject to certain conditions.
The revenue job assist scheme is available to employers who employ an individual who has been unemployed for the previous 12 months. Employers may claim a double deduction when computing the profits of the trade or profession in respect of the first three years' wages paid to qualifying employees. This double deduction may also be claimed in respect of the employers' PRSI contribution on such wages. Qualifying employees, in addition to their normal tax credits, can claim certain income deductions, including additional deductions for qualifying children for the three-year period after taking up employment.
The foreign earnings deduction is a deduction from income tax to assist companies seeking to expand into emerging markets. Subject to certain conditions, a deduction of up to €35,000 per annum when calculating income tax is available for employees who travel to the so-called BRICS countries, namely Brazil, Russia, India, China and South Africa, as part of their duties of employment.
There is also a three-year tax relief for start-up companies. The scheme was introduced in budget 2009 which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first three years of trading. It was modified in 2011 so that the value of the relief will be linked to the amount of employers' PRSI paid by a company. The Finance Act 2012 extended this scheme for the next three years to include start-up companies which commence a new trade in 2012, 2013 or 2014.
Additional information not given on the floor of the House.
The research and development tax credit scheme has been enhanced in most budgets and Finance Acts since its introduction. A recent independent study by Mazars on the cost of global research and development initiatives after tax and other cost incentives has placed Ireland among the world's most competitive locations in this regard. Tax credits available as cash refunds are particularly attractive to start-up companies or SMEs which are not making profits as the credit can effectively part-fund the research and development activity and acts as a valuable source of cash flow.
The Finance Act 2012 also provided for a number of changes to the research and development tax credit scheme. The first €100,000 of qualifying research and development expenditure will benefit from the 25% research and development tax credit on a volume basis. The tax credit will continue to apply to incremental research and development expenditure in excess of €100,000 as compared with such expenditure in the base year 2003. This will provide a targeted benefit to SMEs.
Regarding outsourcing limits, before the Finance Act 2012, sub-contracted research and development costs were eligible where they did not exceed 10% of total costs or 5% in the case of sub-contracting to third level institutions. This limit had the effect of disproportionately affecting smaller companies who may have greater need to outsource research and development work than larger multinationals with greater internal resources. The outsourcing limits for sub-contracted research and development costs were increased in Finance Act 2012 to the greater of 5% or 10% as appropriate or €100,000. This will provide a targeted benefit to SMEs.
Companies in receipt of the research and development credit now have the option of using a portion of the credit to reward key employees who have been involved in the development of research and development. It is envisaged that there would be no additional cost to the Exchequer as the bonus comes from the research and development credit already received by the company and the employee still pays the full tax liability on their other income. This change will be monitored closely and if abused will be removed.
The qualifying period for the scheme of tax relief for corporate investment in certain renewable energy projects has been extended from 31 December 2011 to 31 December 2014. The purpose of the scheme is to encourage investment in renewable energy projects and to facilitate the growth of electricity generation capacity using these sources.
Regarding VAT incentives, small businesses with a low turnover can opt to be exempt from VAT thereby avoiding the administrative burden that it entails. Traders established in the State and making supplies in the State are obliged to register for VAT where certain turnover thresholds are exceeded or are likely to be exceeded in any continuous period of twelve months. The current thresholds are €37,500 in the case of a person supplying services and €75,000 in the case of a person supplying goods. Businesses with a turnover below these thresholds have the option of being exempt from VAT. Where small businesses are registered for VAT, in order to reduce the administrative burden on such businesses, the Irish VAT system provides for less frequent VAT returns. Whereas the general VAT returns are bimonthly, the Revenue Commissioners offer the facility of filing returns twice or three times annually for small businesses. Taxpayers that have an annual VAT liability of up to €3,000 have the option of filing for VAT half-yearly; in January and July in respect of the periods January-June and July-December respectively. The facility of filing three times yearly is offered to taxpayers that have an annual VAT liability of between €3,001 and €14,400. These taxpayers pay and file in May, September and January in respect of the periods January-April, May-August and September-December respectively.
In addition, small businesses can avail of the option to pay VAT on a cash receipts basis. VAT is normally accounted for on the basis of invoices issued regardless of whether the trader has been paid for the supply in that period. However, small businesses with an annual turnover of €1 million or less can avail of the cash basis of accounting which provides traders with the option to account for VAT on a cash receipts basis. This means that the trader is not required to pay VAT until payment for the supply is actually received. The VAT cash accounting option assists a significant number of firms and focuses in particular on small firms in the critical area of cash flow.
While general in nature, I remind the Deputy that last year I introduced a number of changes in the jobs initiative that would assist small businesses. These include the introduction of a temporary second reduced rate of VAT of 9%. To support the tourism industry, a new temporary second reduced rate of VAT of 9% was introduced with effect from 1 July 2011 until end-December 2013. The new 9% rate mainly applies to restaurant and catering services, hotel and holiday accommodation and various entertainment services such as admissions to cinemas, theatres, museums, fairgrounds, amusement parks and the use of sporting facilities. In addition, the new rate also applies to hairdressing and printed matter such as brochures, maps, programmes and newspapers. The lower rate of PRSI until end-2013 on jobs that pay up to €356 per week was also halved.
I thank the Minister for his response. I welcome the introduction of the employment investment incentive and the seed capital scheme. Does the Minister accept that in the current economic climate many small businesses are really hurting? Is he aware that 177,547 small businesses employ under ten staff, 9,769 employ between ten and 19 staff, 5,215 employ between 20 and 49 staff and 37,488 employ between three and 12 persons? These are the people who need our maximum support. Will the Minister accept we have to ensure these small businesses are part of the overall strategy of economic recovery? We can talk about getting back into the markets but those small businesses have to be in the engine room of the recovery of the economy.
I agree with the Deputy. Foreign direct investment is flowing strongly into the country now. Although it is a significant volume of investment, it is still not the main employer in the economy. The main employers are all the small businesses, as outlined by the Deputy, employing small numbers of people. Until they are restored to health, no impact will be made on reducing unemployment in the country. I agree in general with what the Deputy has said.
There is no shortage of schemes to assist small companies. Sometimes I feel many of these small companies do not know these schemes and write-offs are available to them. We must look at a way of communicating better, possibly through their representative organisations.
I am glad the Minister accepts small businesses are the economy's main employers. The information issue seems to be a regular problem. When I engage with small businesses and self-employed people, a high percentage of them are unaware of all the schemes available to them. Will the Minister and the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, be more proactive on this issue?
Many small businesses and self-employed people feel penalised on the PRSI issue. Many of them will have paid it, along with tax and VAT, for nearly 30 or 40 years. They often feel they are left down by the State in this regard when they retire or their business closes.
The Minister for Jobs, Enterprise and Innovation is aware of the lack of knowledge of some employers and small businesses of the schemes that are available which would be to their benefit. I understand he is taking steps these weeks to ensure a better flow of information of such schemes to small businesses. I will draw his attention to the Deputy's question and ask him to continue to prioritise the issue.