1. Employment support
Attracting and retaining talent, reskilling and preparing their workforce for the digital future are areas of focus for many private business owners. In that context, we recommend the following:
- Increase income tax bands and credits in line with inflation.
- Increase the Small Benefit Exemption for employees to €1,000 per annum.
- A reduction or rebate of up to 50% of employers' PRSI for an initial 12-month period to help relieve businesses against the cost of increasing salaries and supporting employees.
- Increase the civil service travel and subsistence rates to account for inflation associated with fuel, food and accommodation.
- Certain public transport benefits (such as the Tax Saver Commuter ticket scheme) to employees should be fully exempt from all income tax.
- Introduction of incentives within the private business sector to let properties to staff, such as taxing rents received by the corporate employer from their employee at 12.5% (as opposed to the current rate of 25%), employers receiving additional deductions in respect of the purchase or retrofit of 'green' properties, additional tax reliefs available to employees that let retrofitted properties from their employer (e.g. additional income tax credits, reduced benefit-in-kind (BIK) where less than market rent is paid to the employer).
- Changes in relation to the taxation of share option schemes, particularly the differences in treatment between short and long options.
- Introduction of capital gains tax (CGT) treatment on share buybacks of Key Employee Engagement Programme (KEEP) shares.
- Introduction of a new scheme for private business owners to sell their business to an employee-owned trust (EOT) and the availability of CGT exemption on the transfer.
2. Supporting growth and investment
Due to the geopolitical crisis, the knock-on effects on global supply chains and high inflation, the introduction of measures to stimulate growth and investment in private businesses is needed now more than ever. In that context, we recommend the following:
- Reduce the interest rate on the late payment of tax to 3% across all tax heads to aid business cash flow. This rate would be in line with the 3.5% rate of interest applied in the UK on the late payment of tax.
- Monitor the qualifying conditions and repayment timelines in relation to the Tax Debt Warehousing Scheme.
- Review the commercial rates regime, engaging all stakeholders with the objective of establishing a replacement regime that is fit for purpose in this digital age.
- Reduce the standard rate of VAT from 23% to 21%.
- Increase both the VAT registration and cash-receipts basis of accounting thresholds.
- Extend the 9% VAT rate for the hospitality sector to 31 December 2024.
- Where possible, reduce customs rates on the importation of key building materials used for the development of residential properties.
- Introduce a once-off grant, similar to that currently in operation in Portugal (known locally as the 'MAIS rural employment grant'), whereby employees would be offered a grant to help with the costs of relocating to rural towns and villages in Ireland.
- Introduce a 130% accelerated super capital allowance deduction in year one to write off expenditure on IT equipment and software for employees to facilitate continued remote and hybrid working from home where possible.
- Reduce the CGT rate on non-property investments from the current rate of 33% to 20% to support investment by private businesses and entrepreneurs.
- Introduce changes to the Employment Investment Incentive Scheme (EIIS) to include an enhancement by allowing CGT loss relief if the investment fails, rectifying provisions that are a relic of the Business Expansion Scheme (BES) legislation (e.g. the inability to use certain holding companies) and more recent provisions that have given rise to some unintended consequences (e.g realised investment gains liable to income tax rather than CGT).
- Correct the anomaly that exists in the legislation when assessing whether an individual is "connected" with the EIIS company (an individual cannot claim EIIS relief if this happens).
- Improve the R&D (research and development) Tax Credit Regime by increasing the rate of the R&D tax credit, broadening the expenditure base (e.g. rent, facility costs etc.), increasing subcontractor and university caps, providing for a fully monetised credit, for which payment can be accelerated from the current three years to one year, and permitting the utilisation of the credit to reduce other taxes including employment taxes and VAT. There should be a pre-approval process for new claimants below a certain scale.
3. Building a sustainable Ireland
Ireland needs changes and incentives to ensure that it meets the net zero greenhouse gas emissions target that we have agreed to. In that context, we recommend the following:
- The launch of further information and support to aid the SME sector in managing the transition to net zero.
- Provision of funding and support from the Government to future-proof businesses and to be encouraged to invest in businesses that support the green economy.
- Introduction of an additional corporation tax deduction for staff costs where the employees have been hired to support the business's sustainability agenda or where selected employees are completing an upskilling programme that contributes to the green economy.
- Reintroduction of 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 (S626B TCA 1997) to early stage renewable energy projects.
- Provide greater certainty as to what qualifies for CGT participation exemption (S626B TCA 1997), with particular reference to capital projects in the area.
- Put the entitlement of claiming capital allowances on grid connection costs beyond doubt.
- An increase in the pre-trading expenditure window from three to seven years.
- Introduce measures to encourage a market for second-hand electric vehicles by way of tax incentives. Please refer to PwC's ESG pre-Budget submission for further details.
- 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.
- Introduce the ability to monetise capital allowances in respect of qualifying energy efficient assets (e.g. where a company is loss-making).
- Continued improvements to capital allowances for energy efficiency.
- Introduce tax incentives for farmers and landowners to make their land available to deliver renewable energy.
- Introduction of measures to incentivise both private individuals and the private business sector to invest in green properties. Some suggested measures in this regard include additional 'green' tax reliefs in respect of CGT liabilities arising on the disposal of properties that have been retrofitted.
- Introduce a reduced rate of stamp duty, or indeed an exemption from stamp duty, where the retrofit of a second-hand property has taken place within a specified time period after the initial purchase of the property.
- Introduce a retrofitting scheme (incorporating associated upskilling) aimed at modernising Ireland's housing stock.
- Tailor the existing Living City Initiative measures to cope with projected urban population increases in the decades to come. We propose a consultation process with relevant stakeholders to explore the possibility of expanding the special regeneration areas (SRAs) that currently qualify for this relief, expanding the definition of a qualifying residential property, expanding the qualifying period for expenditure beyond 31 December 2022, a carve out from the 10% stamp duty rate on acquisition of certain residential properties, consider a rolling three year approach for Living City Initiative and some proposed changes to enhance owner occupied residential relief.
4. Business succession, transition and other priorities
Succession planning and planning for future exit strategies continue to be high on the agenda. In that context, we recommend the following:
- Raise the capital acquisitions tax (CAT) Band A threshold (including all gifts and inheritances from parents to their children) to €500,000.
- Remove anomalies from CGT Retirement Relief.
- Increase the retirement relief age from 66 to 70.
- 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.
- Allow CAT Business Property Relief on active property rental businesses. This is in line with our suggestion within the Employment Supports category whereby it is proposed that incentives are introduced for Irish businesses to let properties to their staff.
- 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.
- Expand the Revised Entrepreneur's Relief provisions under S597AA TCA 1997 to include dividend income for founders (provided the existing conditions to qualify for this relief are met).
- Expand the scope of the definition of a Chargeable Business Asset within Revised Entrepreneur's Relief to include a disposal of shares in a trading company with a dormant subsidiary.
- Introduction of a bona fide test into the 2017 anti-avoidance legislation, S135 (3A) TCA 1997 to facilitate CGT treatment on genuine commercial share disposal transactions.
- Support the Irish audiovisual and gaming sectors by way of review and enhancement of Ireland's creative tax reliefs.
- Extend the Film Relief beyond the current expiration date of 31 December 2024.