Budget 2013 – Ten point plan could spur on small businesses
In his Budget, Minister Noonan announced a ten point tax reform plan to help small businesses. Of particular interest in the ten point plan are the following elements:
- Reforming the three-year corporation tax relief for start-up companies to allow unused credits to be carried forward. This is subject to the maximum amount of relief in any one year not exceeding the eligible amount of employers’ PRSI in that year. It will help SMEs to create jobs and improve cash flow.
- Increasing the cash receipts basis threshold for VAT from €1 million to €1.25 million. This was well short of the €2.5 million threshold sought by the Small Firms Association but is a move in the right direction. I suspect this will increase further in future budgets.
- Amending the R&D tax credit by doubling the initial spend eligible for the credit from €100,000 to €200,000 will further encourage innovation, business expansion and help with cash flow. A full review of the R&D Tax regime will be carried out in 2013 and it is my hope that the regime can be simplified further so that more companies can avail of it. It is my experience that a lot of companies who could qualify for the tax credit do not submit claims as they think it is too much hassle or do not fully understand it.
- There is to be joint consultation between Revenue and the Department of Finance to identify measures to ease the administrative burden of tax compliance for micro enterprises i.e. businesses with turnover less than €75,000 per annum and less than ten staff. It looks like these businesses will transfer to a receipts and payments basis for calculating profits. More details to follow in the Finance Act.
Outside the 10 point plan, the decision to introduce a rebate for hauliers from 1 July 2013 is also very welcome. It will be interesting to see how this works in practice.
Farmers play a very important role in the SME sector, and the Government should have gone further and scrapped the green diesel replacing it with a rebate system too.
The abolishing of the redundancy rebate will add extra labour costs and is very disappointing for SMEs. This will negatively affect those businesses already hardest hit. Minister Leo Varadkar advises me that it was either this or the introduction of business paying sick pay for all staff for up to three months. The government should exempt small businesses with less than 50 employees and reinstate the 60% rebate immediately.
There were also significant announcements in Budget 2013 in relation to the provision of additional funding support for businesses. It is envisaged that these will enable the delivery of a range of new and improved supports for companies in need of credit. The government is using scarce resources to leverage funding from the private sector to provide more credit for businesses.
Two of these measures deserve particular mention:
- The National Pensions Reserve Fund is developing a range of support funds for the SME sector, initially ranging in size from €100 million to €400 million, to provide equity, credit and recovery investment. The NPRF is expected to partner with a number of international funds as it sets up and runs the new investment pools. The NPRF agreed a similar tie-up deal earlier this year with California based Silicon Valley Bank, a specialist lender to hi-tech firms to provide $100 million over five years. This was on commercial terms rather than at the discretion of the Department of Finance. This will be a very valuable source of funds for the SME sector and is sure to attract a lot of attention.
- The decision to allow early release of up to 30% of AVCs should help some owner-managers secure some much needed finance. The release of these funds will be taxed at your marginal rate.
The Government will hope that funding and credit measures, along with the ten point tax reform plan, will help SMEs to improve their cash flow, help them access funding, boost demand for their products in new markets and incentivise them to create jobs.
The one worry is that the domestic market may not create the demand from the SME sector so that they may be able to create jobs and lead the recovery. Having said that, it is now up to the SME sector to pick up the gauntlet and show the government that its faith in them to lead the recovery is well founded.
Patrick O Rourke, Partner, O’KellySutton, Chartered Accountants, Tax Consultants and Business Advisors