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Recovery and Renewal: Supporting private businesses and SMEs in Budget 2022

06 July, 2021

PwC today publishes its 2022 Pre-Budget Submission for the Irish Private Business and SME sector 'Recovery and Renewal - Supporting private business and SMEs in Budget 2022'. Developed in conjunction with the Family Business Network, the Submission focuses on new and innovative tax initiatives and other measures to support home-grown Irish private businesses through the next stage of Recovery and Renewal as the country emerges with a new sense of confidence and hope.

A photo of a woman doing woodwork.

Speaking at the launch, Nicola Quinn, Tax Partner, PwC Entrepreneurial & Private Business Practice, PwC Ireland, said: "The Government should be commended for the various supports that it has given to businesses from the very start of the pandemic, particularly in the sectors hardest hit including Ireland's SMEs and private businesses. Despite concerns about new virus strains and the very recent further delay in the reopening of the hospitality sector, there is optimism that economic activity will bounce back. However, this will be unevenly spread with a growing fear amongst private businesses that the contingency funds and support measures will be largely exhausted as we head into 2022 and beyond. Therefore, particular attention will still be needed to continue to support our private businesses, employing some 45% of people working in Ireland. It would be very disappointing to see successful businesses fail just before they have had the chance to trade again. Now more than ever we need to continue to support businesses through a new stage of recovery and renewal". 

"Our 2022 Pre-Budget Submission sets out proposed measures to foster growth and create employment in the Irish Private Business and SME sector while restoring business confidence. The strategic priority areas we have targeted for support are: employment maintenance and business restoration; growth and investment; building a sustainable Ireland and business succession".

Key measures proposed include: 

  • Extending the EWSS to 30 June 2022; 
  • Waiving the TWSS and PUP clawbacks for employees in certain situations; 
  • Additional tax credits for people working at home; 
  • Increase the small benefits exemption by €1,000 for hospitality spend;
  • Extending tax debt warehousing to end 2022; 
  • Reduce the interest rate on late payment of taxes;
  • Relaxation of employers' PRSI for new hires previously unemployed; 
  • Extending the 9% VAT rate for the hospitality sector to the end of 2023; 
  • 'Super deduction' until 31 December 2023 for plant and machinery (including IT equipment for remote working) and capital expenditure on buildings/factories that receive a recognised accreditation for overall energy performance; 
  • Accelerated tax write-offs for the development of regional hubs to create shared office spaces; 
  • Tax deductions on rent for landlords in certain situations; 
  • Temporary reduction in capital gains and capital acquisitions tax rates; 
  • Similar to the UK, facilitate the transfer of businesses to the next generation without incurring upfront punitive tax costs i.e. pay an 'upfront instalment' of the gift/inheritance tax with the balance being spread over a longer term period; 
  • Extending CGT exemption to early stage renewable energy projects to encourage release of assets to renewable developers and encourage the wider adoption of electric vehicles via a general scheme of tax incentives.

Colm O'Callaghan, Tax Partner, PwC Entrepreneurial & Private Business Practice, concluded: "Succession planning and planning for future exit strategies are high on the agenda for many business owners and particularly at a time when many businesses need new energy and drive for growth post pandemic. However, a key challenge for Irish private and family businesses is the efficient and affordable transfer of business assets. The survival of many businesses in these highly uncertain times will be dependent on a successful transition of the business. The retention of these businesses by their Irish founders is important for the future growth of the domestic economy. As well as this, many of these businesses are central to the survival of the local and rural areas in which they are situated. We propose a consultation process with relevant stakeholders and the Department of Finance to explore possible measures to facilitate a burdensome free transition to the next custodian".

Notes to editors

Summary of key measures proposed are:

Employment maintenance and business restoration

Key challenges facing many private business owners as they look to 2022 include restoring the workforce, attracting and retaining talent and reskilling their people for a digital future. Key measures proposed include:

  • Extend the Employment Wage Subsidy Scheme (EWSS) beyond 31 December 2021 to 30 June 2022, with a tapering of reliefs from 1 January 2022 to 30 June 2022.
  • Waive the income tax and USC 'clawback' for employees in receipt of the Temporary Wage Support Scheme (TWSS) and the PUP where their net pay had fallen by 25% or more. 
  • The current tax regime for employees working from home is both inequitable and inadequate. Introduce an additional tax credit of €250 to individuals who work from home for at least (i) 2 days per week or (ii) 10 days per month.
  • Increase the Small Benefit Exemption for employees from €500 to €1,500 per annum provided that the €1,000 'uplift' is directly applied to support the hospitality sector. 
  • Accelerate the ability to monetise corporation tax losses to carry back trading losses for a period of three years up to a maximum of €2m. 
  • Extend the Tax Debt Warehousing Scheme and introduce the tapering of Business Rates until the end of 2022.
  • Reduce the interest rate on late payment of taxes to 3%
  • Introduce a super deduction of 130% upfront for spend on IT equipment for employees to support remote working. 
  • Modernise Ireland's tax offering for employee share ownership which is falling a long way behind our international peers including vital changes to the Key Employee Engagement Programme (KEEP) to offer employees a viable mechanism to invest in their employer's business. 

Growth and investment 

To successfully reopen the economy, stimulating growth and investment in private Irish businesses needs to be a priority, particularly in the labour market for specific industry sectors. Youth unemployment also needs to be tackled. Key measures proposed include:

  • A relaxation of employers' PRSI for an initial 12-month period for qualifying new hires that have been unemployed for a period of 6 months or more as a result of Covid-19 restrictions.
  • Supports and accelerated capital allowances for the development of regional hubs in central locations in our suburban towns to create shared serviced office spaces to lessen the commute time of many people with the additional environmental and local economic benefits. 
  • Extend the 9% VAT rate for the hospitality sector to 31 December 2023. 
  • Increase the VAT registration thresholds to €50,000 and €100,000 respectively for businesses that supply either goods or services only and businesses that supply goods and services to help them as they restart and scale while increasing headcount.
  • Introduce a tax deduction for landlords who waive rent in order to support a third party SME tenant that has been severely impacted by the Covid-19 restrictions.
  • In the case of unoccupied commercial space which is rented out under a sublease, tax this rental income at a reduced rate of tax (e.g. 12.5% for companies or 20% for sole traders or partnerships) rather than the normal tax on rent.
  • We believe that the Employment Investment Incentive (EII) scheme is in urgent need of a makeover. Amend the EII legislation on designated funds to allow the use of private equity partnerships. Enhance the EII by allowing USC tax relief on qualifying EII investments, or alternatively, by allowing CGT loss relief if the investment fails.

Business succession

Succession planning and planning for future exit strategies are high on the agenda. The survival of many domestic businesses in these highly uncertain times will be dependent on a successful transition of the business to the next custodian, be that “next gens”, key management stakeholders or third party investors. Key measures proposed include:

  • Introduce a temporary reduction in the Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) rates to 20% (from 33% currently) for a period of 2 years and raise the gift and inheritance threshold from parents to their children to €500,000 (currently €335,000). 
  • High tax is currently preventing or delaying the efficient passing of wealth. Introduce temporary measures to reduce gift tax liabilities in order to encourage a transfer of wealth. Consider reducing the gift tax liability to 75% of the inheritance tax liability as was the case prior to 1994. 
  • Remove the arbitrary €3m cap on the value which can qualify for CGT Retirement Relief on the transfer of shares for those aged 66 years of age and older for a period of two years with a further review to take place at that time.
  • Remove cash as a non qualifying asset in trading businesses for CAT Business Property Relief purposes. 
  • Similar to the UK, consider Introducing a mechanisms to facilitate the transfer of businesses to the next generation without incurring upfront punitive tax costs e.g. an 'upfront instalment' of the gift/inheritance tax with any balance of tax being spread over a longer term period of at least 10 years. 
  • Increase the lifetime limit for Entrepreneur Relief to €5m. The current limit of €1m is out of kilter with the marketplace and, in most cases, does not provide sufficient incentive for entrepreneurs to dispose of their businesses and reinvest in new businesses.

Building a sustainable Ireland

Ireland is prioritising its transition to carbon neutrality and the private business sector also needs to embrace climate change and the challenges and opportunities this will bring. However, this must be supported by a suite of well-designed “green” tax measures. We have already launched our Green Pre-Budget Submission in June. Below are the principal recommendations targeting the private business sector:

  • Time limited 'super deduction' until 31 December 2023 for capital expenditure on all plant and machinery and capital expenditure on buildings/factories that receive a recognised accreditation for overall energy performance.
  • Re-examine the relief for investment in renewable energy generation which ceased in 2014. This relief would encourage corporate shareholders to invest in renewable energy projects.
  • Extend CGT exemption to early stage renewable energy projects as it is critical that these early stage projects are being divested to renewable developers, with the necessary expertise and capital, to fully deliver the project. 
  • Allow capital allowances on grid connection costs and relax the pre-trading expenditure window from 3 to 7 years to make it more on a par with what is available in the UK. This would substantially reduce the cost of building a renewable energy project. 
  • Introduce a well designed “retrofitting scheme” (incorporating associated upskilling) to modernise Ireland's housing stock. This would not only stimulate activity in the economy, it would also help provide for much more healthy, ergonomic and energy efficient workspaces for the new wave of e-worker. 
  • Encourage wider adoption of electric vehicles via a general scheme of tax incentives for hybrid/electric vehicles, lower rates of VRT or motor tax on hybrid vehicles and the introduction of incentives for companies that invest in “electrifying” their fleet.

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