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Pre-budget submission 2022 — Private businesses and SMEs

06 July, 2021

Irish private and SME businesses are looking forward for the first time since the beginning of the pandemic with a sense of confidence and hope at what lies ahead. A real threat to the prevailing sentiment would be to see businesses failing just before they have the chance to prosper. The economy needs a period of healing. Now more than ever, we need to support businesses through a new stage of recovery and renewal, and stand up to the challenge of building a more sustainable Ireland.

A photo of a plant growing.

Our 2022 Pre-Budget submission, developed in conjunction with the Family Business Network, focuses on key tax initiatives to support home-grown Irish business.

The key proposed changes include:

Employment maintenance and business restoration 

How private businesses are restoring their workforce, attracting and retaining talent, reskilling and preparing their workforce for the digital future are the key challenges facing many private business owners as they look to 2022.

  • Extend the EWSS beyond 31 December 2021 to 30 June 2022, with a tapering of reliefs from 1 January 2022 to 30 June 2022
  • Waive income tax and USC 'clawback' for employees in receipt of the TWSS and the PUP where their net pay had fallen by 25% or more
  • Income tax bands and credits to be increased in line with inflation.
  • 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 per annum 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 earlier.
  • Reduce the interest rate on late payment of taxes to 3%
  • Extend the Tax Debt Warehousing Scheme to at least 31 December 2022
  • Introduce a tapering of Business Rates until the end of 2022 for businesses that were severely impacted by the COVID-19 restrictions
  • Introduce a time-limited enhanced upfront deduction of 130% for capital expenditure incurred by employers on IT equipment required for remote working
  • Modernise Ireland's tax offering in the area of employee share ownership which is falling a long way behind our international peers. Our recommendations include a number of changes to the KEEP scheme and the introduction of Employee Ownership Trusts (like in the UK) to offer employees a viable mechanism to invest in their employer's business

Supporting growth and investment

Any measures aimed at stimulating growth and investment need to be targeted, and emphasise tackling youth unemployment.

  • A relaxation of employers' PRSI for an initial 12-month period for qualifying new hire employees that have been unemployed for a period of 6 months or more as a result of COVID-19 restrictions.

  • Increase both the VAT registration and cash-receipts basis of accounting thresholds.

  • Extend the 9% VAT rate for the hospitality sector to 31 December 2023.

  • 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.

  • Introduce accelerated capital allowances for the development of regional hubs in central locations in our towns and suburban areas.

  • Introduce an enhanced upfront deduction of 130% for capital expenditure on plant and machinery as well as on buildings that have a recognised accreditation for energy performance.

  • 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.

Building a sustainable Ireland

Ireland cannot opt out of the transition to carbon neutrality. The private business sector will need to bear its share of the load, but this must be supported by a suite of well-designed "green" tax measures.

  • Reintroduce the relief for investment in renewable energy generation (s486B TCA 97) which ceased in 2014 in order to encourage corporate investment.
  • Extend the CGT participation exemption to early stage renewable energy projects since 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.

  • Put the entitlement of claiming capital allowances on grid connection costs beyond doubt and relax the pre-trading expenditure window from three to seven years.

  • Launch a consultation process to consider whether an extension of the scope of the R&D tax credit to include innovation in the area of sustainability is needed

  • Introduce a "retrofitting scheme" (incorporating associated upskilling) aimed at modernising Ireland's housing stock.

  • Encourage wider adoption of electric vehicles via a general scheme of tax incentives for hybrid or electric vehicles, lower rates of VRT or motor tax on hybrid vehicles and incentivise companies to "electrify" their fleet.

  • Introduce a time limited 'super deduction' (up to 130% of capital expenditure incurred) until 31 December 2023 for the purchase of all plant and machinery and capital expenditure on buildings or factories that receive a recognised accreditation for overall energy performance.

Business succession, transition and other priorities

Succession planning and planning for future exit strategies are high on the agenda. The survival of many SMEs in these highly uncertain times will be dependent on a successful transition of the business to the next incumbent, be that next gens, key management stakeholders or third party investors.

  • Introduce a temporary reduction in the CGT and CAT rates to 20% for a period of 2 years and raise the Band A threshold (including all gifts and inheritances from parents to their children) to €500,000. 

  • Introduce temporary measures to reduce gift tax liabilities in order to provide a window of opportunity 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 anomalies from how CGT Retirement Relief is calculated to ensure that it operates on a consistent basis with Capital Acquisitions Tax (CAT) Business Relief.

  • Remove the arbitrary €3 million 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 Relief purposes until and unless the cash is invested in non-qualifying assets.

  • Introduce 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 or inheritance tax applying with any balance of tax being spread over a long-term period of at least 10 years.

  • Increase the lifetime limit for Entrepreneur Relief to €5 million

  • Introduce a bona fide test into the 2017 anti-avoidance legislation (s135(3A), TCA 97) to facilitate genuine commercial share disposal transactions.

  • Correct a procedural anomaly in the tax appeals system that is unfairly impacting taxpayers.

  • Extend and enhance the VAT Compensation Scheme to support the charities sector.

Contact us

Ronan Furlong

Partner, PwC Ireland (Republic of)

Tel: +353 53 915 2421

Nicola Quinn

Partner, PwC Ireland (Republic of)

Tel: +353 21 425 4011

Colm O'Callaghan

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6126

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