In the November 2012 Medium Term Fiscal Statement, the Department of Finance published a paper on the importance of small business to the Irish economy. This paper highlighted that small and medium sized businesses make up over 99% of businesses in Ireland and account for almost 70% of people employed. Despite Ireland's reputation as one of the world's most globalised economies, 64% of private sector workers are employed by indigenous non-exporting firms, with 56% working for indigenous, non-exporting small businesses. These numbers highlight the importance of domestic demand for sustaining and generating employment in Ireland, and suggest that our recovery strategy needs to give some additional support to small businesses.
To that end, the 10 Point Tax Reform Plan contains measures to assist small business in a number of ways by:
- Helping their cash flow position;
- Helping them access funding;
- Reducing the costs associated with the administrative burden of tax compliance;
- Boosting demand for their products in new markets; and
- Incentivising them to create jobs.
The measures are as follows:
- Reforming the 3 Year Corporation Tax Relief for Start Up Companies to allow unused credits to be carried forward to help create jobs and improve cash flow;
- Amending the Close Company Surcharge by increasing the de minimis level to €2,000 to reduce the administrative burden and assist cash flow;
- Increasing the amount of expenditure eligible for the R&D Tax Credit on a full volume basis (without reference to the 2003 base year) to €200,000 to encourage innovation and help cash flow;
- Increasing the VAT cash receipts basis accounting threshold from €1m to €1.25m to help cash flow;
- Extending the Foreign Earnings Deduction for work related travel to Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal & Tanzania to help boost demand for Irish goods and services abroad;
- Extending the Employment and Investment Incentive scheme to 2020 to help companies access funding;
- Extending the general rate and Young Trained Farmers rate of stock relief and amendments to the definition of registered partnerships for stock relief to give a targeted assistance to the farming sector;
- Introducing a Capital Gains Tax relief for Farmers for land restructuring to give a target assistance to the farming sector;
- Reviewing the 'carried interest' provision in the tax code to help small businesses to access funding;
- Announcing a joint Revenue and Department of Finance public consultation: 'Taxation of Micro Enterprises: Reduction in Compliance Costs' to identify ways to ease the administrative burden.
Measures 1 to 9 above were implemented in Finance Act 2013 which was enacted in March 2013. Revenue data on take-up of the various measures will not be available until the 2013 income and corporation tax returns of relevant businesses are filed with Revenue. The exact filing date will depend on individual circumstances but in the main will arise in Q4 2014.
To elaborate on some of the specific items in the plan, I would note that in relation to Measure 4, the annual turnover threshold for eligibility for the cash basis of accounting for VAT was increased from €1 million to €1.25 million in Budget 2013 with effect from 1 May 2013. While there are no direct statistics available, it is expected that over 800 businesses will have benefitted from this Budget change.
In relation to Measure 5, the Foreign Earnings Deduction was extended in Finance Act 2013 to include for work related travel to Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal & Tanzania to help boost demand for Irish goods and services abroad. This relief is available to all qualifying persons travelling to these countries for work-related travel for the tax years 2013 and 2014.
In respect of Measure 6, the EII was extended to 2020 to help companies access funding. This is a state aid scheme and accordingly, the approval of the European Commission is required. An application was made to the European Commission in June to extend the EII until 2020. Officials have been assured by the Commission that the necessary approval will be received shortly.
In respect of Measure 7, extending the general rate and Young Trained Farmers rate of stock relief and amendments to the definition of registered partnerships for stock relief to give a targeted assistance to the farming sector.
As regards Measure 8, Section 48 of Finance Act 2013 provides for relief from capital gains tax on disposals of farm land for farm restructuring, subject to a Commencement Order, which I made on 6 June 2013 (due to the need to obtain EU State Aid approval for the measure). The relief applies to a sale, purchase or exchange of agricultural land in the period from 1 January 2013 to 31 December 2015 where Teagasc has certified that a sale and purchase or an exchange of agricultural land was made for farm restructuring purposes. The initial sale or purchase, or the exchange, must occur in the relevant period and the subsequent sale or purchase must occur within 24 months of that sale or purchase.
Measure 9 relates to reviewing the 'carried interest' provision in the tax code to help small businesses to access funding. Following a review of the carried interest provisions in the tax code, Finance Act 2013 made a number of changes with the aim of making the provisions operate as intended. Firstly, it extends the scope of the relief so that it is not limited to carried interest derived from investment in trading companies at the start-up phase only. Secondly, it links the relief to the overall performance of the investment portfolio of the qualifying venture capital fund. Thirdly, it reduces the duration of the period for which the investment in the target companies must be held from 6 years to 3 years. Lastly, it extends the relief that is currently available to companies and partnerships to individual venture fund managers. These amendments are designed to assist companies engaging in innovation activities to access investment from venture capital funds.
As yet, no information is available on the number of people who have availed of CGT farm restructuring relief and/or availed of the revised carried interest provisions because they will be applied for via personal income tax returns for 2013 which will not be submitted until late in 2014. It is not anticipated that these returns will include a provision for the separate capture of specific information in relation to these incentives.
Finally, in respect of Measure 10 - 'Taxation of Micro Enterprises: Reduction in Compliance Costs', the public consultation closed in February 2013, and only a small number of submissions were received (7 in total). The results of the consultation are being considered by the Department of Finance and the Revenue Commissioners at present, with a view to identifying next steps. The Deputy will also be aware that I announced enhancements to some of these measures in my recent Budget speech.