The key private business measures introduced in Finance Bill 2021 are as follows:
- The extension, on a graduated basis, of the Employment Wage Subsidy Scheme (EWSS) to April 2022.
- Further changes to the Employment Investment Incentive (EII) scheme to encourage the flow of much needed seed/early stage investment capital.
- Enhancements to the corporation tax exemption for start-ups.
- Some changes to capital taxes but unfortunately none related to the transfer of business assets.
- Some amended agricultural measures.
- A change to allow charities to be re-organised and retain the charitable tax exemption.
Employment Wage Subsidy Scheme
The Bill addresses our pre-Budget 2021 recommendation of avoiding a “cliff edge” on the EWSS through an amendment of the Emergency Measures in the Public Interest (COVID-19) Act 2020. The broad parameters for the extension is that businesses availing of the EWSS at the end of this year will continue to be supported until 30 April 2022. However, it will be closed for new employers from 1 January 2022. The following summarises the position over the coming 7 months:
- Oct/Nov: no change.
- Dec/Jan/Feb: two-rate structure (€151.50 per week and €203 per week).
- Mar/April: flat rate of €100 per week and an end to the reduced Employer PRSI rate.
Employment Investment Incentive
The Bill includes a number important changes to the Employment Investment Incentive (EII) scheme. The changes reflect some, but not all, of the feedback given on ways to improve the effectiveness of the scheme during a stakeholder event hosted by the Department of Finance over a two day period last March.
The most significant change is the opening up of the scheme to a wider range of investment funds. By way of context, it is possible for investors to make eligible EII investments by either directly investing into the qualifying company or by doing so indirectly via a “designated fund”. A designated fund needs to be “..established under irrevocable trusts for the sole purpose of investing in qualifying companies''. This was viewed as a relic of the old Business Expansion Scheme rules and not in keeping with the types of private equity investment structures that have become the norm in the Irish market. The Bill opens up EII to include `qualifying investment funds' which capture limited partnerships established either under the Limited Partnership Act 1907 or the Investment Limited Partnership Act 1994. We hope this change will lead to greater participation in the market and result in a “win-win” for companies seeking finance and for investors looking for diversification that they can most easily get when investing under the umbrella of a fund.
Further positive changes include the extension of the EII by a further three years to the end of 2024, the removal of the rule that 30% of an investment must be spent before relief can be claimed and making it easier to redeem investor share capital without incurring a clawback of tax relief. The clawback provisions were, however, extended for shares issued on or after 1 January 2022 by the reinstatement of the rule that part of the tax relief (ten fortieths) will be withdrawn if the incremental jobs or R&D expenditure tests are not achieved within the investee company.
Overall, the above measures are more of a tweak than an overhaul of the EII legislation. The real question is whether there will be an improvement in uptake from the low levels seen over recent years. At the moment, “cautious optimism” is how we would assess it as we know from practical experience that EII will probably remain quite challenging for companies whose scaling journey will involve multiple funding rounds. The amendments announced in the Bill appear best suited for start-ups that use the EII as a once-off source of funding.
Relief from Corporation Tax for Start-Up Companies
The sunset date for the corporation tax exemption for start-ups has been extended by five years to 31 December 2026. In addition, the exemption can now be claimed for a period of five years where the company commenced to carry on the qualifying trade on or after 1 January 2018. The existing three year period applies in all other cases. This exemption (which is linked to employer PRSI contributions) grants a full exemption where the corporation tax otherwise payable by the company is less than €40,000 and marginal relief applies where it falls between €40,000 and €60,000. Uptake on this exemption when viewed in terms of its cost to the Exchequer has been low as many start-ups are not profit making in the early years, so hopefully the extension by way of an additional two years will see a slight uptake in use as companies transition from initial startup to profitability stages in their lifecycle.
Digital Gaming
The introduction of a new tax credit for digital gaming will be of interest to SMEs that operate in that sector - see more commentary on this in the section dealing with the Domestic and International Large Corporates.
Capital Acquisition Tax
On Capital Acquisitions Tax, there was a change to the way a gift or inheritance comprising the free use of money is to be calculated. The amendment provides that the value of that gift or inheritance is to be determined by reference to the best price obtainable of borrowing an equivalent sum in the open market rather than the opportunity cost (demand deposit interest) foregone, which over recent years has been negligible.
There was also an amendment to allow Revenue to seek the delivery of a tax return from a disponer in respect of gifts which comprise property (irrespective of value) subject to agricultural property relief or business property relief claims.
Agriculture Measures
On the Agricultural side, there were a number of existing reliefs extended, these include:
- General stock relief extended to 31 December 2024,
- The enhanced stock relief for young trained farmers and registered farm partnerships and the stamp duty exemption for young trained farmers have all been extended and are now due to expire on 31 December 2022.
In addition, the farmers’ flat rate VAT addition will be reduced from the current 5.6% to 5.5% for the year 2022.
Charities
For charities, there was an amendment to allow, subject to certain conditions, the successor body that emerges from a re-organisation to retain the charitable tax exemption. A similar provision for amalgamating charities was also included in Finance Act 2020.
We are here to help you
We work with a wide variety of privately owned businesses across numerous industries to deliver practical and effective tax solutions that combine industry insight with first-class technical expertise. We’ve led the way with the thought leadership contained in our pre-Budget submissions. We can help to contextualise the Finance Bill 2021 measures in terms of what it means for you and/or your business. Please do not hesitate to get in contact with us to find out more.
