Budget 2022: What SMEs need

PwC tax partner Colm O’Callaghan warns that the post-Covid economic bounce-back might not be evenly spread and calls for measures in Budget 2022.

Budget 2022 should be targeted to maintain employment and support future growth in Irish private businesses and SMEs.

This article sets out what the Minister could announce that would benefit this group the most.

Now more than ever we need to continue to support Irish SMEs and private businesses through a new stage of recovery and renewal. 

There are four strategic priority areas that we believe should be targeted for support: employment maintenance and business restoration; growth and investment; business succession and building a sustainable Ireland. 

Some specific measures that would be of real benefit include:

• Extending the supports available including Employment Wage Subsidy Scheme (EWSS) and tax debt warehousing;
• Indexation of tax credits and bands as well as additional tax credits for working from home;
• Relaxation of employers’ PRSI for new hires previously unemployed; 
• 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;
• Temporary reduction in capital gains and capital acquisitions tax rates.

Growing fears

The Government’s announcement to end most Covid-19 restrictions by 22 October 2021 brings with it much needed optimism.  But the anticipated economic bounce back is likely to be unevenly spread.

There is 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 which employ some 45pc of people working in Ireland.

 We have identified some key measures under the key strategic priority areas mentioned above: 

Employment maintenance and business restoration

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

• Extend the EWSS to 30 June 2022
• Introduce an additional tax credit of €250 to individuals who work from home for at least two days per week or 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 3pc.
• Introduce a super deduction of 130pc upfront for spend on IT equipment for employees to support remote working. 
• Modernise Ireland’s tax offering for employee share ownership including vital changes to the Key Employee Engagement Programme (KEEP).  

Growth and investment 

Measures aimed at stimulating growth need to be targeted. 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. 
• Extend the 9pc 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.
• Amend the Employment Investment Incentive (EII) scheme 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

The survival of many domestic businesses in these 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 20pc (from 33pc currently) for a period of two years and raise the gift and inheritance threshold from parents to their children to €500,000 (currently €335,000). 
• Introduce temporary measures to reduce gift tax liabilities to encourage a transfer of wealth. For example, a reduction of the gift tax liability to 75pc of the inheritance tax liability. 
• 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.
• Similar to the UK, consider introducing mechanisms to facilitate the transfer of businesses to the next generation without incurring upfront punitive tax costs. For example 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. In most cases, it 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.

The private business sector also needs to embrace climate action and the challenges and opportunities this will bring.

However, this must be supported by a suite of well-designed “green” tax measures.

We believe that tax policy can play a critical role in Ireland’s decarbonisation journey: supporting renewable energy adoption, environmental taxes and incentives and incentivising consumer behaviour.