Robert Gubbins from PwC assesses the impact of Budget 2023 on domestic businesses and warns opportunities may have been missed, particularly from a climate action perspective.
Minister for Finance Paschal Donohoe, TD, presented a Budget which was a delicate balancing act for the Government, as it sought to address the impact for consumers and businesses of rising energy costs and other inflationary pressures.
Budget 2023 was rightly a ‘cost of living’ budget, containing a number of tax measures which should be of benefit to Irish SMEs and their employees.
“Opportunities have been missed to invest in strategically important sectors and to contribute to longer term sustainable growth”
Some of the key inflationary measures introduced include the provision of significant energy supports and the widening of tax bands and credits.
There were also some welcome announcements in the area of employee incentivisation. However, opportunities have been missed to invest in strategically important sectors and to contribute to longer term sustainable growth.
Domestic businesses support
It is primarily domestic businesses that are feeling the pinch in these volatile times and it is crucial that support is provided to this sector as quickly as possible to maintain viable jobs.
The introduction of the Temporary Business Energy Support Scheme aimed at SMEs is the most notable measure introduced in yesterday’s Budget. It covers 40% of the increase in electricity or gas bills, up to a maximum of €10,000 per month per business. The scheme will be self-assessed and administered by the Revenue Commissioners.
Given Revenue’s track record in their efficient operation of the various Covid support schemes, it is hoped that this scheme will be as agile as previous schemes particularly in terms of getting much needed cash to businesses as quickly as possible. To qualify for the scheme, companies will need to have trading income, be tax compliant and meet certain eligibility requirements based on an increase in comparable energy costs from 2021 to 2022.
The exceptional circumstances of the last three years have given private businesses access to a number of supports, either in the form of grants or ‘soft loans’. Businesses will need to stay on top of the administrative and cash flow-management challenges associated with these supports, both now and in the longer term.
One notable recent development is that the Revenue Commissioners are currently corresponding with businesses that were eligible to avail of the tax debt warehousing scheme. Revenue are inviting taxpayers who have availed of the scheme to carry out a general ‘self-review’ of their tax affairs, as well as ensuring that they are satisfied that they have met the various qualifying conditions of the scheme. It should be borne in mind that any formal correspondence with Revenue on this matter will fall under the new Revenue Compliance Intervention Framework (this replaces the previous Revenue Audit Code of Practice).
Employee incentives
The increase in the small benefit exemption from €500 to €1,000 is a welcome measure and is a very straightforward way to reward employees. We are also encouraged by the Minister’s announcement on the extension of the ‘Key Employee Engagement Programme’ (KEEP), ‘Special Assignee Relief Programme’ (SARP) and the ‘Foreign Earnings Deduction’ (FED) until the end of 2025.
In relation to the KEEP scheme, a significant amendment was proposed which will facilitate the buy-back of KEEP shares by the issuing company. The KEEP scheme is a share option scheme primarily designed for the SME sector and there has been a disappointing uptake of this scheme since its introduction in 2018.
One of the main reasons for this is because CGT treatment (at 33% as opposed to marginal income tax rate at 52%) was only available to the employees on a disposal of their shares in very limited circumstances (essentially in the event of a third-party sale of the business).
This proposed amendment should now offer participants in this scheme a realistic opportunity to realise value from their shares tax efficiently. We would be hopeful that these changes will encourage private businesses to seriously consider the KEEP scheme as a viable platform to incentivise, attract and retain key talent.
Climate change
Budget 2023 was perhaps more muted than expected on climate change measures.
There was a missed opportunity to use some of our excess corporation tax receipts to incentivise investment into high-potential growth and green technology sectors to ensure that climate action remains at the forefront of the investment agenda.
Some examples of measures we would like to have seen introduced include accelerated allowances for energy efficient equipment or buildings, tax incentives for farmers and other landowners who make their land available to deliver renewable energy, and tax relief for interest in respect of capital expenditure incurred on retrofitting projects.
Conclusion
The focus of Budget 2023 was rightly on ensuring that the most vulnerable in our society are protected from inflationary pressures.
While certain measures are welcome and will serve to support SME businesses, opportunities may have been missed to use tax incentives to take the significant steps forward that will be needed to meet the 2030 emissions reduction target.
