What businesses, SMEs and start-ups need to know about Budget 2020

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On Tuesday (8 October), Minister for Finance Paschal Donohoe talked through the main points of Budget 2020 in the Dáil.

From the get-go, Donohoe was firm about the fact that there would be “no surprises” in the Budget, as the Government braces itself for whatever lays ahead after 31 October, when the UK is due to leave the European Union.

In preparation for Brexit, Donohoe has set out a package of €1.2bn, which will be spread among a number of Government departments. The package is split into two parts, with €200m to be made available next year. If there is a no-deal Brexit, around €220m will be offered immediately.

Supports for businesses ahead of Brexit

“In the event of no deal, €650m will be made available to support the agriculture, enterprise and tourism sectors and to assist the most affected citizens and regions,” Donohoe continued.

He explained that this package will be borrowed money. In the event of a smooth Brexit, where a deal is met, Ireland will not borrow this money.

The Government also plans to allocate €5m for an emergency Brexit fund for Local Enterprise Offices; an extra €2m for Intertrade Ireland; €45m on a transition fund; €42m on a rescue and restructuring fund; €8m on a transformation fund for food and non-food businesses; and €5m extra for Microfinance Ireland.

The Citizen’s Guide to #Budget2020 is now available on our website: https://t.co/1bBnr0QCM0 pic.twitter.com/iQ9jat9Lzm

— Dept. PER IRL (@IRLDeptPER) October 8, 2019

Budget 2020 will see a 2pc increase in funding to the Department of Business, Enterprise and Innovation in 2020. The total fund for this department is around €1bn.

Corporation Tax will remain the same, at 12.5pc. In 2020, the Earned Income Credit for self-employed people will be increased to €1,500, from the previous figure of €1,350.

Start-ups and SMEs

Ahead of Budget 2020, Scale Ireland was launched by Irish start-up leaders calling on the Government to revamp the Key Employee Engagement Programme (KEEP), enhance the Employment and Investment Incentives Scheme (EIIS), simplify the R&D Tax Credit, improve Capital Gains Tax for entrepreneurs, equalise the treatment of self-employed workers, and prepare businesses for Brexit.

While the Government made changes to KEEP, EIIS and the R&D Tax Credit, as well as some adjustments for self-employed workers, this year’s budget did not make any allowances for Capital Gains Tax for entrepreneurs.

Donohoe said: “I do not propose to make any changes to the relief at this time but have asked my Department to consider the outcome of the review to determine any changes that could be made to the relief to better support entrepreneurs and entrepreneurial activity.”

EIIS changes

The Government will continue the reform of EIIS that began last year. Donohoe said: “I am allowing for full income tax to be provided in the year of investment, rather than splitting it over years one and four, as has been the case up up to now.

“I also intend to increase the annual investment limit for the incentive to €250,000 and provide for a new €500,000 annual investment limit being introduced for those investors who are prepared to invest in EII for 10 years or more. The legislation will provide that these changes to EII will apply from today’s date.”

R&D Tax Credit

Donohoe also announced a number of enhancements to Ireland’s longstanding R&D Tax Credit, with a particular focus on supporting claims to the credit by smaller companies.

The finance minister said: “I am increasing the R&D credit from 25pc to 30pc for micro and small companies, and allowing an improved method of calculating the limit on payable credit. I am also introducing a new provision to allow micro and small companies to claim the R&D Tax Credit on qualifying pre-trading R&D expenditure before commencing to trade.”

There are also plans to increase the current limit for third-level institutes from 5pc to 15pc.

“This may be of particular benefit to smaller companies who rely on outsourcing to undertake R&D, and it will also support R&D activities in the third-level sector,” Donohoe commented.

Ian Collins, head of R&D tax services at EY, said: “While these are welcomed improvements, ideally we would have liked to have seen more. We have previously called for accelerating R&D refunds over a shorter time span, reducing the level of administration and providing greater certainty on the levels and types of documentation needed to support claims.

“These are critical areas to encourage greater engagement by the SME sector and help maintain Ireland’s competitiveness in this space.”

KEEP and SARP

Regarding the changes to KEEP, Donohue said: “I am providing for KEEP to apply to company group structures as well as allowing for greater flexibility for employees to move within such structures.

“I am also adjusting the rules of the scheme to allow for part-time and family-friendly working arrangements for KEEP employees. These changes are subject to State Aid approval.”

EY people advisory services partner Michael Rooney said: “KEEP was introduced with the primary purpose of enabling start-ups and SMEs to compete with larger organisations and multinationals in attracting and retaining key talent.

“Unfortunately, due to the many restrictive and burdensome conditions attached to the programme, it has failed to deliver. This is evidenced by recent figures suggesting that less than 60 employees nationwide have availed of KEEP since its introduction in 2018.”

Rooney welcomed the changes made to KEEP in Budget 2020, but remarked: “More needs to be done to remove the barriers that are deterring start-ups and SMEs from availing of the programme.”

The Government also announced changes to the Special Assignee Relief Programme (SARP), extending it until 2022. Rooney added: “The extension of SARP until 2022 brings certainty to our FDI community that they can recruit and attract overseas workers to come and work in Ireland.

“However, the condition that they must be employed by a group employer for more than six months is not compatible with the growing Irish tech and pharma industries, who recruit new hires from all over the world to come and work in Ireland rather than source them from their own overseas companies.”

‘The backbone of the Irish economy’

Overall, EY’s Annette Hughes, director of economic advisory services, welcomed the €1.2bn package and the additional supports for smaller businesses. “SMEs are the backbone of the Irish economy, accounting for the overwhelming majority of Irish enterprises,” she said.

“The recent decline in consumer confidence to a six-year low does not augur well for SMEs, who are likely to face serious cash-flow pressures, particularly in the most vulnerable sectors such as agri-food, manufacturing and tourism, over the coming weeks and months.

“Thus these supports for SMEs, including the beef and fishing sectors and for businesses in the most vulnerable regions, to get them through the difficult weeks and months ahead, are welcomed given the extent to which their performance is closely linked with the economy’s performance.”

Business boosts

One industry that may unexpectedly benefit from Budget 2020 is the microbrewing industry. Donohoe announced that Irish microbreweries will be allowed to expand, increasing the qualifying production threshold from 40,000 hectolitres to 50,000 hectolitres.

Donohoe also increased supports for the Irish tourism sector, pointing out the industry’s solid performance in recent years. With a record number of 10.6m visitors to Ireland last year, Donohoe has allocated €40m towards initiatives in the tourism sector.

Maura Quinn, CEO of the Institute of Directors Ireland, commented: “Business confidence has been in virtual freefall … It looks like the Government has taken on board the concerns of the business community and has delivered the conservative Budget that was required.”

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