Description
Placing entrepreneurship at centre of Government policy.
ISME
Taxation &
Entrepreneurship
Placing entrepreneurship at centre of Government policy
July 2015
Page 1 of 19 15194 Tax Consultation Response final
Contents
Introduction .......................................................................................................................................................... 2
In the beginning….............................................................................................................................................. 4
ENTREPRENEUR’S RISK ALLOWANCE, Tax System and Self-employed & Proprietary directors. ........................... 5
Start-up unused tax credits. ............................................................................................................................... 5
Social Welfare system and Self-employed & Proprietary directors. .................................................................... 6
2
nd
Starters –‘startover’. ..................................................................................................................................... 6
CGT and CAT issue ............................................................................................................................................. 7
Inheritance Threshold Levels.............................................................................................................................. 8
Start-Up Relief for Entrepreneurs (SURE) ........................................................................................................... 8
Employment Investment Scheme ....................................................................................................................... 9
Encourage employee share-based remuneration in private companies .............................................................. 9
Corporation Tax: Start-up Relief ....................................................................................................................... 11
Patent Tax Relief .............................................................................................................................................. 12
PRSI – Lower rate for Employers ...................................................................................................................... 12
Redundancy Payments. .................................................................................................................................... 12
Training in SMEs .............................................................................................................................................. 13
Peer to Peer Lending ........................................................................................................................................ 13
Home renovation incentive .............................................................................................................................. 14
9% VAT Rate .................................................................................................................................................... 14
Interest on Late Payment of taxes. ................................................................................................................... 14
Commercial Rates ............................................................................................................................................ 15
Wage Gross to NET Calculator on ROS.............................................................................................................. 15
Plain Language Tax Guides ............................................................................................................................... 15
APPENDIX 1 ......................................................................................................................................................... 17
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Introduction
We in ISME welcome this consultation as it is part of the process to put entrepreneurship back at the top of the
Government’s agenda. It is reassuring that policymakers have realised the importance of a thriving private sector
and of an equitable and encouraging taxation system. Ireland will revive and thrive through more entrepreneurs
and better policies, taxation and otherwise, for all business sectors.
Since the 1970s and 80s the country has benefited hugely from the State’s FDI policy resulting in the set-up of
hundreds of companies and thousands of highly paid jobs. Ireland’s competitiveness was one of the best in the
world in the early 90’s. One of the key pillars in that competitiveness was the taxation policy.
Currently the concern is that the key pillar of Irish competitiveness, when it comes to foreign direct investment,
corporate tax rates, is under attack. Many rival jurisdictions, including the UK, are making a much stronger pitch
for overseas investment by reducing their corporation tax rate and offering a wide range of incentives in areas
such as research. We cannot depend on FDI continuing at the rate it did in the past.
Therefore Ireland needs to grow its own entrepreneurs. We need to use our tax system more effectively to draw
on the increasingly large pool of Irish-born managers, skilled professionals, and entrepreneurs working both at
home and overseas.
As we know from previous experience in the 1990s many Irish ex-patriates with young families were drawn back
home. However in 2015 they will also want to be assured that the education system remains in good order,
hospitals are safe and efficient, and that property is available to rent or buy at reasonable prices.
So encouraging home-grown, but foreign trained, entrepreneurs is key to the next stage of this country’s recovery
as well as the need through our education system to create an emerging generation of entrepreneurs running
into thousands.
The State’s role in this is making sure that our competitiveness is not hampered through the high level of the
price of its own services and through an equitable tax regime, which encourages business, both start-ups and
established small and medium enterprises.
We in ISME would also recommend that Government initiate a programme of ‘cultural change’ towards
entrepreneurship. Too often entrepreneurs are wrongly perceived in a negative light, and, as recently seen,
included in the same category as the corporate greed demonstrated by big business in the Clery’s liquidation.
This must change. The efforts of real entrepreneurs, who risk their own resources, create businesses and jobs,
must be recognised and rewarded, and this is true both for policymakers at all levels and for society at large.
SME’s throughout the Country are central to the recovery and are central to the realisation of opportunities.
SMEs comprise 99.7 per cent of all employer firms and account for almost 70 per cent of private sector
employment. SMEs are also key for the creation of new jobs: 67 per cent of all new jobs created in Ireland are in
businesses which are in the first five years of existence.
SMEs are the lifeblood of the economy and the commitment and hard work of people owning, running and
working in SMEs have contributed greatly to the current turnaround in Ireland’s economic fortunes. The economy
is growing, stability is being restored and we now have the opportunity to have more people in work in Ireland by
2020 than ever before. SME’s are at the heart of this growth.
During the period of austerity a number of measures have been introduced in budgets, increasing the cost
burden for employers.
? The Redundancy Rebate was abolished entirely.
? Changes were introduced to Illness Benefit, placing more pressure on employers.
? In addition the Employers’ PRSI reverted to 8.5pc for some Class A workers, a doubling of the cost.
? The Abolition of Employer PRSI relief on employer pension contributions for employees.
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As part of this consultation it is imperative that these changes be reversed to assist in the creation and
sustainability of jobs.
The importance of intermediary business organisations must also be recognised. Many SMEs would not exist
without the irreplaceable counselling and advice they receive from our business association, which also plays a
key role as an interface with decision makers. No strategy, taxation or other, will really succeed unless it
recognises and supports not only the role of entrepreneurs, but also the importance of their business
organisation. That is why the success in the implementation of the actions from this consultation depends to a
very large extent on the full involvement and cooperation with business organisations. ISME and its members are
ready to do our part in this respect.
In submitting the Association’s reply we have consulted with SME owners and managers throughout Ireland. The
issues and points included in our response paper are a distilled version of many of the observations made and,
while not strictly adhering to the sequence of questions as asked, represent the views and answers of Irish SME
owner managers.
ISME, July 2015.
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In the beginning….
To begin with, if we believe that entrepreneurship is good for the country, then the tax system should be designed
to encourage good entrepreneurship. Also, tax measures that encourage entrepreneurship will inevitably pay for
themselves – a win-win result.
However, the likelihood of entry into self-employment, the basic level of entrepreneurship, is being stymied by our
tax and social welfare system. The incentive to start, finance and run a business is negatively affected by the tax
regime. The underlying principle of taxation is EQUITY and FAIRNESS, all treated equally. Same income – same tax.
Instead self-employed people in Ireland continue to be discriminated against in terms of tax credits, USC and PRSI
rates.
Budget 2015 actually worsened the relative position of low income self-employed. A self-employed single person
on an income of €15,000 now pays almost 8 times more tax and PRSI than an employee on the same income and,
as we see below, has a lower entitlement to social welfare benefits.
In a similar fashion of discrimination, if a business fails, the social protection system also treats the entrepreneur
differently, denying them any form of ‘safety net.
Currently ‘unemployed’ employees and self-employed are treated differently under the social welfare code, as
follows:
The failure to provide supports to entrepreneurs, who have lost their livelihoods, sends out the complete wrong
message in promoting an enterprise culture and disregards and disrespects the significant contribution of these
individuals to the economy, while hampering ‘second chance’ entrepreneurs.
The Tax System must support business owners and entrepreneurs, not treat them differently to other citizens.
EMPLOYEE
? Immediate entitlement to benefits
? No means test.
? Personal savings not assessed.
? Other income not assessed.
? Cohabitee income not assessed.
? Value of All Property totally ignored.
? Invalidity – covered.
? Disability – covered.
SELF EMPLOYED
? No immediate entitlement.
? Fully means tested.
? All savings fully assessed.
? All Income fully assessed.
? Cohabitee income fully assessed.
? Value of property, other than family home
fully assessed.
? Invalidity – Not covered.
? Disability – Not covered.
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ENTREPRENEUR’S RISK ALLOWANCE, Tax System and Self-employed & Proprietary directors.
Entrepreneurs are motivated by opportunities where they perceive that the potential rewards outweigh the risks.
The current Irish tax system, where entrepreneurs can pay up to six times as much tax as their PAYE counterparts,
does not incentivise self-employment. The tax system must be revised to incentivise risk taking.
This blatant discrimination of the self-employed has been the subject of a ‘Dear Taoiseach’ letters campaign
1
conducted by ISME. The campaign proved to be very successful with a large number of SMEs sending the template
letter to the Taoiseach’s office and also sharing the content on social media. The level of support for the campaign
highlights the frustration felt by the self-employed in relation to this issue.
The incentive to start, finance, expand and run a business is affected by the tax regime. The tax environment for
SME entrepreneurs has deteriorated since the beginning of the recession and, if not addressed, will slow down any
recovery.
The tax code has for many years discriminated against Proprietary Directors, preventing them from availing of the
normal PAYE tax allowance. This indicates reluctance on the part of the authorities to recognize the significant
contribution of entrepreneurs and acts as a disincentive for individuals to set up their own businesses.
Employees are entitled to claim an additional tax credit (currently €1650). The credit is not available on amounts
paid by a company to a proprietary director or to the spouse or civil partner of the person paying the income.
This allowance was introduced in the tax year 1980-81 at the rate of £400 (€508) by the Minister for Finance,
Michael O’Kennedy who said:
“I am providing a special Schedule Employee Allowance of £400 for each PAYE taxpayer in order to improve the tax
progression for these taxpayers and also to take account of the fact that the self-employed generally have at
present the advantage of paying tax on a previous year basis. I intend to exclude from this provision those
Schedule E taxpayers in a position to control their own remuneration or that of their spouses, for example
directors of proprietary companies. This Schedule E employee allowance is also intended to take account of the
case made by ICTU that the present general scheme of allowances discriminates against employees and in favour
of other taxpayers.”
2
There were high rates of inflation at that time, running at an average of 18.1%. The assessment of self-employed
persons on their income of the preceding year conferred a significant advantage. This no longer applies as self-
employed are now assessed on their current year’s income and are also paying preliminary tax.
The employee tax credit of €1,650 means that self-employed taxpayers pay almost €32 per week more in income
tax than an employed taxpayer on the same income.
There is also a USC disparity of 3% between the employed and self-employed for income in excess of €100,000.
There is no justification for this disparity. It is blatant discrimination against the self-employed.
Allow Proprietary Directors and Self-employed to avail of an allowance called Entrepreneur’s Risk Allowance
similar in value to the normal PAYE Allowance.
Start-up unused tax credits.
No account is taken in the income tax codes of the reality that many entrepreneurs might have paid themselves a
subsistence salary, or nothing at all, for several years in order to build their business.
1
‘Dear Taoiseach’ letters see Appendix 1
2
Section 3 of Finance Act 1980.
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Many entrepreneurs are forced, through economic circumstances or decide to take a minimal salary from their
business in the first years, not fully using all their available tax credits and standard rate bands in those years.
The tax system could allow entrepreneurs to carry forward their unused tax credits and standard rate bands to
future years.
Social Welfare system and Self-employed & Proprietary directors.
While we recognise the essential role of entrepreneur and the SME, there continues to be a stigma around the
failure of a business, rather than seeing it as a “badge of honour” as in other countries.
To encourage more entrepreneurs to start a business and take the risk they should be afforded an equal level of
protection as their employees in the event of business failure. The lack of sufficient Social Welfare supports to
entrepreneurs who have lost their business and livelihood sends out the wrong message in promoting an enterprise
culture and disregards the significant contribution that these individuals have made to the economy.
A voluntary PRSI rate for self-employed should be created, such as a variation on PRSI Class A, could be used to
allow self-employed people to make a combined contribution both as an employer and an employee. This would
need to be introduced on a voluntary basis and could be promoted and encouraged over a period of time to gain
traction.
In many European countries, self-employed people opt-in to the social insurance scheme, with their rates/taxes
varying depending on the nature of their business. In France the self-employed can benefit from a range of benefits
including family; health; illness; and pensions. There are exemptions for unemployed people starting up a business.
The tax for Micro-enterprises is calculated on a % of their turnover.
In the USA, both the employed and the self-employed pay a Social Security tax. In general the self-employed pay
twice what the employer pays for an employee with some exemptions. However there is a lower rate of Social
Security for self-employed creating employment.
We recommend the following:
? Self-employed and proprietary company directors be allowed choose a higher PRSI contribution for
themselves to guarantee equal status if injured or unemployed. This can be introduced as a simple choice
of opting in or out of an improved benefit system.
? The method of assessing the self-employed for Jobseekers allowance should be simplified with regard to
income, spousal income, assets and savings.
? A national awareness and information campaign should be conducted, aimed at the self-employed in
relation to entitlements and benefits and the effect of voluntary contributions.
2
nd
Starters –‘startover’.
Specific financial supports/initiatives should be available for second starters for example, the introduction of a
Social Protection “Start Over” initiative as called for by the Advisory Group on Small Business where, for a defined
period, an individual could legitimise their tax/earning status on the basis of forgiving the past and moving forward.
Penalties could be increased in the event of any fraudulent declarations.
The discrimination against the self-employed in the tax system must be addressed so that potential entrepreneurs
know that the work and hardship of setting up a business could eventually be worth the effort.
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CGT and CAT issue
In Ireland there is no distinction made between entrepreneurial gains and purely speculative, non-productive
gains.
Similar to income tax, no account is taken in the capital gains tax codes of the reality that many entrepreneurs
would reinvest gains in enterprise sales, should the tax system be more supportive.
Inheritance threshold levels are currently too low and should be increased to reflect current house prices. The tax
treatment of family businesses being passed on to the next generation should also be reviewed and reformed to
better suit modern businesses.
Businesses must be able to be sold on without experiencing penal rates of taxation. CGT retirement relief has seen
significant restrictions imposed on the value that can transfer tax free if the individual is aged 66 or older. These
restrictions impose a reduction in the availability of the relief to a maximum of €3m and €500k for transfers to the
next generation and third parties respectively.
The impact of these can result in tax liabilities of 33% on values in excess of the thresholds, creating a major
disincentive to potential successors. A new investor in an existing business brings an impetus which will inevitably
lead to expansion and job creation, so the situation is counter-productive.
The maximum effective tax rates on business succession transactions across Europe range from 0% to 4.5%, without
age limits.
We recommend changes to the CGT and CAT to allow and encourage business succession and would facilitate family
businesses being passed through the generations without the imposition of a burdensome tax liability on the
business.
The rate increase in Budget 2009 was the first rate change since Budget 1998 when the rate was decreased from
40% to 20%. The rate of CGT has been increased by 65% in less than 5 years.
Despite the increase in rates, there has been no commensurate increases in yield. For example, the increase from
30% to 33% introduced in Budget 2013 was expected to yield an additional €50m in 2013. While we agree that the
yield is not solely determined by the rate of CGT, in this instance the revenue actually fell by €48m from 2012 to
2013 showing a negative turnaround of €98m.
When the rate was reduced to 20% important reliefs were withdrawn. A key relief for business was roll over relief
– CGT could be deferred when the proceeds of a sale of a business asset were reinvested in replacement business
assets. Business badly needs reinvestment that has long been deferred with the recession, roll over relief should
be reintroduced. The lessons of the last recession on the 1980’s need to be re-learned, that investment needs to
be properly incentivised for investment to happen, and for there to be increased liquidity in capital transactions,
and this requires lower rates of CGT.
CGT must be restructured to support enterprise and investment by the re-introduction of inflation indexation relief
and the re-introduction of “roll-over relief” for re-investment. Both were considered and supported by the
Commission on Taxation.
This would limit CGT to ‘real’ gains in asset values by excluding the impact of inflation as measured by the Consumer
Price Index (CPI).
CGT is currently too high and should be reduced, indexed and allow roll over relief.
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Inheritance Threshold Levels
Inheritance threshold levels are currently too low and should be increased to reflect current house prices. The tax
treatment of family businesses being passed on to the next generation should also be reviewed and reformed to
better suit modern businesses.
Retirement relief is a useful tool in that it encourages passing businesses from older entrepreneurs to younger
business people. The €500,000 threshold is far too low, however, and needs to be raised. Also, the clawback for
amounts greater than €500,000 means a negative result for businesses in this position and the threshold should be
allowed with no clawbacks for excess.
Start-Up Relief for Entrepreneurs (SURE)
The SURE provides tax relief for specified individuals who invest in companies that are carrying on trading activities
coming within the EII scheme (Employment and Investment Incentive). There is currently a low level of usage of the
scheme which indicates that changes need to be made to promote its uptake. The scheme is intended to incentivise
Entrepreneurs to leave employment and start their own business and this objective must be supported and
prioritised.
Provisional figures for 2013 show that 65 companies participated at an exchequer cost of €1.3m.
The condition that states that the investor must have been in employment (apart from one year prior to investing
in the business) is too restrictive and excludes:
? Employees who for example are made redundant or leave employment and have not set up the new
business in the tight timeframe i.e. are not employed for more than the one prior tax year
? Self-employed individuals with no employment in the prior years
The condition that the individual has to have employment income in the prior year’s qualifying for relief should be
removed. This would include previously employed and self-employed individuals on equal basis and the likelihood
of successful business ventures would increase.
The investment must be made in two tranches even though the grant aid comes in 3 stages. This causes practical
difficulties and the 3rd stage of grant aid can be paid outside the time limit for investment which has the effect of
prohibiting further SCS investment. To rectify this allow the investment to be paid in three tranches and amend the
tax legislation to allow investment timing and stages to be the same as the grant aid
The individual must become a full time director/employee of the new company in the tax year in which the
investment is made or within 6 months from the date of the investment. This is too short a period of time, therefore
allow a one year time limit during which the investor can become a director/employee of the company invested in.
The exclusion for individuals who have previously owned 15% or more of the share capital of another trading
company in the year prior to investment is unfairly restrictive and could be changed to that no prior SCS shares
were held.
The maximum per year of €100k should be removed as this is a tax credit, not a total refund i.e. you will get a max
of 41% of this. So the people paying higher taxes are punished for doing so.
The maximum relief per annum of €100,000 is too restrictive and minimises potential investments. This should be
increased to €150,000. This would make the maximum relief equal to that available in the Employment Investment
Incentive Scheme.
Criteria for being a qualifying company is overly restrictive and should be opened up to all sectors and industries.
Allow some of the refund to be used to cover part of the investment as often, recently unemployed persons do not
have sufficient funds to invest in a company.
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Employment Investment Scheme
The Employment Investment Incentive Scheme (EIIS) is a tax relief incentive scheme that provides relief for
investment in certain corporate trades. The scheme replaced the Business Expansion Scheme (BES) and was
announced in Budget 2011.
We in ISME hold the view that the scheme is not resulting in the appropriate levels of involvement by SMEs, despite
the moderate success subsequent to Budget 2015 changes. The conditions are still too restrictive, even keeping in
mind the EU State Aid rules.
For example, an investor receives 30% tax relief on investment, then 11/41sts (nearly) four years later if the
employment has increased. If an investment is made during 2014, receipt of the relief of 11/41sts is delayed to the
end of 2018 only if the employment has increased.
This restriction could be removed so that the maintenance of employment leads to qualification for the relief.
In addition there is a lifetime cap of €10m for BES/EII investments. This cap should be doubled to €20m to allow
successful enterprises to continue to raise EII funds.
Investors currently receive tax relief of 30% in Year 1 and must then wait 4 years for the remaining 11%. This means
the investment is less attractive to investors. Increase the tax relief on Year 1 to 41%.
The holding period of three years is too short. Increase the holding period to 7 years.
Encourage employee share-based remuneration in private companies
When compared to other jurisdictions, the regime in Ireland is extremely uncompetitive. It is now very difficult to
attract entrepreneurs to establish a business in Ireland.
Improved employee share ownership schemes will assist employee retention in SMEs and facilitate the alignment
of interests between entrepreneurs, owners and key employees. For example the UK Employee Shareholder Relief
scheme allows the first £2k of shares received by an employee to be exempt from UK income tax and NIC, and the
first £50k of any capital gain arising on a future disposal of the shares is exempt.
The UK Government appointed Graeme Nuttall as their Independent Advisor on employee ownership, and “the
Nuttall Review”, published in July 2012, was commissioned “to identify the barriers to employee ownership and
help find the solutions to knock them down”.
General benefits of Employee Share Ownership
To quote former Deputy Prime Minister, Nick Clegg, “Businesses that are owned by their employees produce more,
grow faster, keep their workforce happier, and pay staff more fairly. Graeme’s report makes clear that sharing
ownership means sharing success.”
Employee Share Ownership:
? significantly improves employee commitment which in turn drives stability while significantly increasing
productivity, and
? considerably reduces absenteeism.
There is a competitive disadvantage for Entrepreneurs versus PLC’s when hiring key staff
The current share based schemes in Ireland are suited to PLC’s but not private companies. This places
entrepreneurs and High-Potential-Start-Ups at a competitive disadvantage versus listed companies when
competing for staff.
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Due to the inability to offer effective share-based remuneration, entrepreneurs have greater difficulty than listed
companies when seeking to attract suitable skilled staff from within the global talent pool. The recently published
Digital Technology Index indicated that it was easier for indigenous technology firms to raise capital than recruit
key staff.
Importance for Entrepreneur maintaining adequate level of equity
In order to motivate the original entrepreneur to continue applying their unique skills and expertise to the growing
business, it is necessary that such an entrepreneur maintain an adequate level of equity. When accessing various
rounds of Venture Capital and other funding, the shareholding of the entrepreneur can often become diluted. In
many cases Venture Capital investors recognise this, and seek to reflate the shares of the original entrepreneur
with share options or other share awards. However, reflation is currently unattractive because of the immediate
tax liabilities triggered.
Current Tax Treatment of share based remuneration in Ireland
When employees receive shares or exercise share options, immediate personal tax liabilities, typically at 52% of the
market value of the shares are triggered. This tax must be paid by the employee via the PAYE system and is
deducted from their net pay. In the case of listed companies, some of the shares received can be sold to discharge
the tax liabilities; however, the key issue for private companies is that there is no readily available market for the
shares. In practice the immediate tax liabilities triggered result in little or no use of employee share-based
remuneration by private companies.
Importance of reducing costs and administrative burdens and ensuring flexibility
In addition to addressing the timing of triggering tax liabilities, it is important that any scheme targeted at
entrepreneurs would be straightforward and that the administrative burdens would be low. The existing share
based schemes in Ireland are suited to schemes involving a minimum of 50-60 employees, and high costs and
significant administrative burdens are imposed by the need for Revenue approval and an external administrator.
The existing schemes must be provided to all employees and therefore lack the flexibility required to target the
incentive towards key employees.
UK Enterprise Management Initiative
The UK Enterprise Management Initiative provides for both a tax reduction and deferral of the timing of tax
liabilities for companies with less than Stg30 million in assets and less than 250 employees. The lifetime employer
limit in terms of value of shares is Stg3 million, while a lifetime limit of Stg250k per employee applies. Companies
have the flexibility to target the incentive at key employees. Property development, hotels and professional service
companies are excluded.
In order to make employee share-based remuneration more attractive to entrepreneurs, introduce a scheme with
a framework similar to the UK scheme, as outlined above, that would provide for a deferral of the triggering of tax
liabilities until there is a suitable market for the shares or until there is a sale of the business.
Specifically, companies with:
? less than the equivalent of Stg30 million in assets, and
? less than 250 employees,
This could provide share based remuneration to employees:
? up to a ‘lifetime’ company limit of the equivalent of Stg3 million,
? a ‘lifetime’ limit of the equivalent of Stg250k per employee, without triggering immediate tax liabilities.
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The owner-manager entrepreneur, as an employee, would also be entitled to receive share-based remuneration
up to the employee limit without triggering tax liabilities. This would facilitate the practice of Venture Capital
investors reflating the shareholding of the original entrepreneur.
Reduce costs and administrative burdens, and ensure flexibility
In order to reduce costs and administrative burdens, and to ensure flexibility, key design considerations include:
? Revenue notification as opposed to Revenue Approval,
? No requirement for external administrator, and
? Flexibility for company in terms of selecting employees to offer the scheme to.
? Promote the proposed new scheme via an awareness campaign
The new scheme would need to be promoted with an awareness campaign. In the March 2013 Budget the UK
Government announced that it will provide €50M annually from 2014-15 to support employee ownership models
and incentivise growth in the sector.
Cost Considerations
Employee share based remuneration within private companies is almost non-existent; therefore there are no timing
costs of any significance from the perspective of allowing a deferral of the tax payment.
Any costs associated with the proposal are timing costs, no reduction in tax rates is proposed.
State-Aid Considerations
The UK Scheme, the Enterprise Management Initiative, received EU approval under State-Aid rules. It is envisaged
that this scheme would be subject to State-Aids approval.
In the US if an employee holds an Incentive Stock Option for at least two years from the grant of the option and
holds the shares for at least one year following the exercise of the option, no income tax applies on the grant or
exercise of the option. Instead, capital gains tax (at 20%) will apply when the shares are sold. No more than
$100,000 worth of shares can become eligible for exercise in a calendar year.
In the UK, in general PAYE (and sometimes National Insurance) are payable on share options. However SMEs can
avail of the Enterprise Management Incentive scheme (EMI). The granting of such options is tax free, income and
NHI and on exercise, can be subject to Entrepreneurs’ Relief in relation to CGT.
Share options with a market value of up to £250,000 may be granted to a qualifying employee of a qualifying
company, subject to a total share value of £3 million.
In addition, the UK Government has introduced a new “employee shareholder” status who will have different
employee rights and shares worth a minimum of £2,000 in the company in which they work. Gains on up to £50,000
of shares acquired by employee shareholders will be exempt from capital gains tax.
Corporation Tax: Start-up Relief
The link between the corporation tax relief and the company’s employers PRSI liability is limiting based on the fact
that a large number of start-up/entrepreneurial companies are unlikely to have significant levels of staff in the early
years.
The reality is that the relief is in effect being maximised by FDI companies which can draw from their own group
resources when hiring staff and therefore can maximise the full benefits of the relief. SMEs do not have this capacity
and therefore are missing out on this relief.
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The “carry forward” rules, which allow any relief not availed of in the first 3 years of trading to be carried forward,
have potentially increased the tax relief for start-up companies.
However, the link between the relief and the company’s employer PRSI liability reduces the availability of the relief
for SMEs, due to low employment levels in their early years, because of prudent management.
We understand the imperative of creating sustainable jobs, however the link should be reconsidered to ensure that
entrepreneurial SMEs can obtain the maximum possible benefit from the relief in the critical early years.
Patent Tax Relief
The removal of the Patent Tax Relief has been detrimental to many SMEs. Replacement reliefs must be introduced.
This is being discussed in another consultation forum.
Up to 2010 the rate of corporation tax on patent income in Ireland was at 0% up to an annual cap for a company of
€5m. This incentive was removed and currently there is no preferential treatment of patent income.
The UK’s “Patent Box” regime has contributed significantly to this turnaround in competitiveness. The objective is
to encourage innovative businesses, both domestic and foreign to invest in Ireland and to locate high value jobs
and activity associated with the development, manufacture and exploitation of patents in Ireland. However, since
the removal of the Patent Box Ireland has become significantly uncompetitive in this regard.
The Patent Box package in the UK provides:
? Profits (income, licence fees, royalties etc.) from qualifying patent interests ( including licence holders) are
taxed at a CT rate of 10%
? The rules are phased in from 60% benefit in 2013 to 100% benefit by 2017
? Any UK company that holds interests in qualifying patents (or certain other intellectual property rights) may
elect into the regime
? If the patented element of a product is minor, 100% of the income arising from the product falls into the
regime.
? If patents relate to the internal processes by which the products are produced or underpin services
provided then the Patent Box regime should still qualify.
? Groups can use Patent Box and continue claiming R&D tax credits.
As part of the consultation on this aspect, ISME will recommend the reintroduction of patent relief for those
companies carrying out “innovation activities” as defined in S541 TCA 1997 (amended by S46 FA 2013), with
appropriate reliefs for SMEs to encourage innovation. Tax rates should be consistent with the CT 12.5% rate and
with the lower CGT rate recommended elsewhere in this document.
PRSI – Lower rate for Employers
The standard rate of employer PRSI is 10.75%. A lower rate of 8.5% applies to employee earnings which are €356
or less per week. As part of the 2011 Jobs Initiative, Michael Noonan reduced this rate to 4.25% until the end of
2013. This welcome support for job creation was not renewed for 2014 and later years, creating a massive negative
effect on payroll costs.
The measure should be reintroduced for a further 3 years to assist in sustaining and creating jobs.
Redundancy Payments.
Amendments have recently been made to the redundancy rebate. Budget 2012 reduced the redundancy rebate
from 60 per cent to 15 per cent for redundancies where the date of dismissal occurred in 2012, while from January
Page 13 of 19 15194 Tax Consultation Response final
1st 2013 the employer statutory redundancy rebate was abolished. In situations where the employer is unable to
pay or refuses or fails to pay the statutory redundancy, the employee can apply for direct payment from the Social
Insurance Fund.
The removal of the rebate has made the redundancy process more expensive for employers. Furthermore, when
the economic cycle enters the next downturn and redundancies escalate again, businesses will be less likely to
survive the downturn without the rebate.
If young SMEs are to survive near-terminal mistakes, or fluctuating demand, they need to be able to reduce staff
costs quickly and cheaply when necessary. The contingent cost of redundancy if the business was to experience a
downturn or failure is a big concern and can be a huge drain for a small company. Large severance packages also
make it much harder for start-ups to recruit the professional managers that can take them into the big league.
Experienced executives are loath to forgo such reassuring goodies by resigning.
Surely every encouragement should be put in place to create jobs and take people off the dole even if,
sometimes, that period of employment is finite. We recommend the reintroduction of a redundancy rebate, (paid
for by employers through employers PRSI) which was reduced and then abolished by the current government.
Training in SMEs
The National Training Fund (NTF) was established in 2000. The National Training Fund Act, 2000 describes the
purpose of the NTF as “to give skills to, or raise skills amongst those in, or seeking employment”.
3
Employers pay for this National Training Fund. It is resourced by a levy on employers of 0.7% of reckonable earnings
of employees in employment classes A and H (approximately 75% of all insurable employees), which is incorporated
and collected through the employer’s PAYE/PRSI system. Allocation for the Fund in Budget 2015 was €362 million.
While employers fund the operation of the NTF, on an annual basis, SOLAS receive approximately 77% of the
expenditure. In recent years, many projects have also been funded through contributions from the National
Training Fund, including €22 million for Springboard, €20 million for Momentum and €5 million for ICT skills
conversion course. In other words, the NTF is almost solely used to upgrade the skills of unemployed people.
Given that the NTF is funded by employers and also intended to support raising skills of those in employment, and
that it was always envisaged that the fund would be used 50/50 between unemployed and upskilling the employed,
ISME advocates that a commitment be made to ensure up to 50% of funding from the NTF is committed to up-
skilling those already in employment as the unemployment rate continues to fall.
The challenge for SMEs is the retention of staff who have been up-skilled at a cost to the SME. Larger businesses
can afford to out-bid SMEs for these newly skilled staff and therefore the benefit of training is lost to the smaller
enterprise. To compensate the SME for the training costs it would be beneficial to give an additional ‘double’
corporation tax relief to SMEs for the cost of training staff in order to support investment in a skilled workforce.
Peer to Peer Lending
The challenges faced by SMEs in relation to accessing credit are well documented. Peer-to-Peer (P2P) lending
improves this situation by providing another avenue of funding for business owners to explore. As well as assisting
businesses, Peer-to-Peer lending allows individuals who aren’t typically involved in investing in businesses to get a
greater interest return on their savings.
The UK government decided to lend £20m to small businesses through FundingCircle.com (A UK P2P website) in
March 2013. Within 2 months of the announcement, FundingCircle.com lending increased from £1m per week to
3
http://www.irishstatutebook.ie/pdf/2000/en.act.2000.0041.pdf
Page 14 of 19 15194 Tax Consultation Response final
£5m. The raised levels of awareness and credibility from the governments lending promoted P2P lending as an
option and led to a huge increase in the funding available via this method. A similar funding injection into a P2P
company by the Irish Government would increase awareness of this type of lending and also make it more attractive
to investors and borrowers.
Peer-to-Peer lending is currently unregulated in Ireland. This makes investing in P2P lending less attractive.
The UKs Financial Conduct Authority has regulated P2P lending in the UK from April 2014. These regulations could
act as a template. ISME requests that a set of regulations for Irish P2P lending be created and implemented as soon
as possible.
Awareness and investment levels need to be raised so that P2P funding can become a credible alternative to bank
funding for Irish SMEs.
ISME recommends that the Government follow the UK successful example of promoting the P2P lending industry
through a cash investment. This investment would increase awareness of this funding stream and encourage savers
to invest.
Home renovation incentive
The Home Renovation Incentive provides tax relief for Homeowners through an Income Tax credit at 13.5% of
qualifying expenditure on repair, renovation or improvement works carried out on a main home by qualifying
Contractors. In Budget 2015 the scheme was extended to rental properties.
This incentive can be improved by;
? The tax credit should be increased to 20% to make it more attractive.
? Increase this maximum to €50,000 to increase activity in the construction sector and extend the HRI scheme
to Landscaping and gardening activities.
? Reducing the minimum qualifying spend will attract more people to contract work from tax-compliant
providers and reduce shadow economy activity.
? ISME recommends that that minimum spend be halved to €2,203 plus VAT.
9% VAT Rate
The 9% VAT rate in the services industry has been extremely effective and should be maintained. The use of this
reduction in rates of VAT should be investigated for other areas where there is a failure or potential failure in the
market.
Interest on Late Payment of taxes.
The interest rate charged by the Collector General on late payment of taxes is currently over 10% p.a., which is seen
as a penal rate. In many cases, businesses that don’t pay their tax on time is as a result of waiting to be paid
themselves and therefore don’t have the funds available when required. Applying this penal rate only compounds
the problem. Furthermore “interest on the late payment of tax” is not a tax deductible expense, while all bank
interest for business purposes is tax deductible.
The Collector General Office states that they deal with each individual on a “Case by Case” basis, so applying interest
is not applied evenly across the board to each taxpayer. Some are not charged, while others get charged all the
time as it depends on the official dealing with the case and the level of leniency afforded to the taxpayer. This
situation creates an uneven playing field.
Page 15 of 19 15194 Tax Consultation Response final
A solution would be to reduce the interest rate to 4% and apply it across the board in ALL cases where tax is paid
late and allow the interest payment to be tax deductible. This would have the effect of treating all taxpayers equally,
reduce appeals and disputes, thereby reducing administrative costs.
Commercial Rates
The current commercial rates system is characterised by a distinct lack of flexibility based on ability to pay or
commercial circumstances, which is stifling profitability. There is a need for amendments to the Valuation Act to
allow for an appeal to rates based on a change in economic circumstances and also a further change to allow the
relevant local authority managers to address hardship cases. The Department of Environment’s Audit Service has
reported that the 2009 rates arrears have more than doubled. The reason is simple, businesses do not have the
money.
? We need an immediate implementation of the Review Group on Local Authorities
4
with a substantial part
of the savings ring-fenced for rate relief and
? The total cost of running Local Authorities needs to be substantially reduced and this reduced figure needs
to be spread over all sectors of the community.
The net result of the above should lead to a 15% reduction per annum over three to four years on the current rate
payers. In essence this only requires a 5% reduction in Local Authority costs in those years.
The savings required to deliver the above can be achieved by
? implementation of the recommendations of the Review Group on Local Authorities;
? a reduction in the number of Local Authorities to reflect one Local Authority per 250,000 people; and
? a root and branch analysis of all spending within Local Authorities with a view to achieving the desired
results.
The current system is working against employment, is working against jobs and is working against businesses. These
recommendations will give is a fairer, more equitable and an affordable system that allows Local Authorities to get
on with doing the job and small and medium businesses to get on with providing employment.
Wage Gross to NET Calculator on ROS
Currently small businesses spend a disproportionate amount on payroll software. To assist the employer and
employee who negotiate wages on a ‘net basis’ a tax calculator could be introduced on the Revenue site and
promoted. Tax compliance costs for small businesses in Ireland could be reduced by a Gross to Net and a Net to
Gross calculator on ROS.
Plain Language Tax Guides
A recurring theme for aspiring entrepreneurs in Ireland is that it is difficult to get the information they need as and
when they need it. The owner/manager of a small business and entrepreneur needs to get to grips quickly with a
broad range of areas so that she is well informed from the start.
However, if the information available is not written in Plain Language, nor written specific to the target audience,
often being overly legalistic, technical or complex, then it acts as a barrier to business set-up.
A Plain Writing Act was introduced in the US in 2010 which requires that federal agencies use “clear Government
communication that the public can understand and use”. In the UK the Plain English Campaign, advocated by a
4
Report of the Local Government Efficiency Review Group
Page 16 of 19 15194 Tax Consultation Response final
private sector commercial entity, resulted in almost all UK Government departments and public bodies having
received a Crystal Mark - which is the Plain English Campaign’s seal of approval.
There is an opportunity now to enhance the level of information available and the format in which it is produced
through a Plain Language initiative involving all government departments and agencies dealing with small
businesses.
? Considerable benefits could be achieved, from what is a relatively low cost initiative:
? Improved small business capability with strong understanding of the need to know basics;
? Enhanced understanding of regulations and tax compliance in particular, which should result in stronger
compliance and a reduction in firms (sometimes inadvertently) operating outside of the system, for
example in employment matters.
? Enterprises will be better equipped to Start Right;
? Improved communications between government and businesses – increased clarity, and reduced
frustrations;
? Reduction in government spending and resources - less resources used in answering calls and explaining
already available pieces of information.
It would be useful, as part of this move to improve the tax environment for entrepreneurs and SME business
owners, if Revenue produced plain language guides to all tax-related business matters. This would assist in start-
ups, help ease the burden of compliance on SMEs and ensure that they do not waste time trying to understand
complex tax instructions.
ISME recommends that immediate plans to rewrite all Revenue leaflets in plain language are put into place.
Page 17 of 19 15194 Tax Consultation Response final
APPENDIX 1
25
th
November 2014.
OPEN LETTER TO AN TAOISEACH, ENDA KENNY, TD.
Dear Taoiseach,
“I have a dream”
Help fight discrimination.
I know that there are 9 grounds for discrimination in Irish law and I am being discriminated against and I am asking
for your help to right this wrong. I have been on to the Equality Authority but they say they can’t help me.
Taoiseach, they are deducting 8 times more from my wage than from my colleague on the same wage in the same
business. They say that it is because of my status.
You see, Taoiseach, I don’t know how to say this, but I’m self-employed.
INCOME TAX (PAYE, USC, PRSI)
My colleague (Employee) €15,000 €285
Me (Self-Employed) €15,000 €2,235
And even when I reach the heady salary of a public servant - €50,000 there is still an 11% differential against me
because of my status (self-employed). Recent Revenue figures show there are 105,000 of us self-employed on less
than €50,000.
Why then must a self-employed single person on an income of €15,000 pay 8 times more tax than her employee
on the exact same income and also have a lower entitlement to social welfare benefits.
You say that we are near to your heart.
“Entrepreneurs are the backbone of the economy” and “we will make Ireland the best small country in the world
in which to do business”, just two of your quotes relating to Irish entrepreneurs and self-employed people who
work in, finance and run SMEs. Your support is most welcome.
Now, if you will forgive me for being so blunt; put your money where your mouth is.
Tax us in the same way as everyone else in the economy. The underlying principle of taxation is EQUITY and
FAIRNESS, all treated equally. Same income – same tax.
I am not asking for special privilege, I am not looking for ‘double Irish’, I am not seeking ‘Apple status’. In fact, all I
ask for is FAIR PLAY.
So, Taoiseach, we who are discriminated against, the self-employed demand equality. So, what are you going to do
to stop this blatant discrimination against the very people who you want to create jobs, the self-employed?
Yours faithfully,
Self-employed.
Page 18 of 19 15194 Tax Consultation Response final
January 2015.
An Taoiseach, Enda Kenny, TD.
Government Buildings
Merrion Street,
Dublin 2.
Dear Taoiseach,
TAXATION OF SELF EMPLOYED & PROPRIETARY DIRECTORS
SAME INCOME - SAME TAX
The underlying principle of taxation is EQUITY and FAIRNESS, all treated equally. Same income – same
tax.
As a business person I am asking you to change the way that I am discriminated against under the Irish
tax code.
In the Table you can see the effect it has on Self-employed at €15,000 income paying 8 times more than
an employee. (684% more)
At a salary of €50,000 and €100,000 the differential is 11% and 4% respectively.
TABLE 1. INCOME TAX (PAYE, USC, PRSI)
Employee on €15k €15,000 €285
Self-Employed on €15k €15,000 €2,235 684% More
Employee on €50k €50,000 €14,585
Self-Employed on €50k €50,000 €16,235 11% More
Employee on €100k €100,000 €40,384
Self-Employed on €100k €100,000 €42,034 4% More
Employees are entitled to claim an additional tax credit (currently €1650). The credit is not available to
Self-employed or their spouses or civil partners, if paid. This alone means self-employed pay €32 per
week more than employees.
Recent Revenue figures show there are 105,000 self-employed on less than €50,000.
Why then must a self-employed single person on an income of €15,000 pay 8 times more tax than
her employee on the exact same income and also have a lower entitlement to social welfare
benefits.
Now on top of the extra tax, the self-employed suffer a minimum charge of €500 PRSI and pay 4 per cent
of our income; employees pay no PRSI if their income is under €352 per week and a percentage
thereafter.
As you can see, the discrimination against us self-employed and proprietary director taxpayers is more
extreme at the bottom of the income scale, which is what economists call regressive.
Page 19 of 19 15194 Tax Consultation Response final
Taoiseach, not alone is the system discriminatory but it’s regressive. There is a very strong case
for changing this unfair treatment of self-employed, particularly those on low incomes and, as you
will know, most of us in start-ups take very little by way of income in the early years.
Once again, I ask you to stop the discrimination against us, the self-employed, who in turn employ
thousands.
Yours faithfully,
_______________________
doc_882377855.pdf
Placing entrepreneurship at centre of Government policy.
ISME
Taxation &
Entrepreneurship
Placing entrepreneurship at centre of Government policy
July 2015
Page 1 of 19 15194 Tax Consultation Response final
Contents
Introduction .......................................................................................................................................................... 2
In the beginning….............................................................................................................................................. 4
ENTREPRENEUR’S RISK ALLOWANCE, Tax System and Self-employed & Proprietary directors. ........................... 5
Start-up unused tax credits. ............................................................................................................................... 5
Social Welfare system and Self-employed & Proprietary directors. .................................................................... 6
2
nd
Starters –‘startover’. ..................................................................................................................................... 6
CGT and CAT issue ............................................................................................................................................. 7
Inheritance Threshold Levels.............................................................................................................................. 8
Start-Up Relief for Entrepreneurs (SURE) ........................................................................................................... 8
Employment Investment Scheme ....................................................................................................................... 9
Encourage employee share-based remuneration in private companies .............................................................. 9
Corporation Tax: Start-up Relief ....................................................................................................................... 11
Patent Tax Relief .............................................................................................................................................. 12
PRSI – Lower rate for Employers ...................................................................................................................... 12
Redundancy Payments. .................................................................................................................................... 12
Training in SMEs .............................................................................................................................................. 13
Peer to Peer Lending ........................................................................................................................................ 13
Home renovation incentive .............................................................................................................................. 14
9% VAT Rate .................................................................................................................................................... 14
Interest on Late Payment of taxes. ................................................................................................................... 14
Commercial Rates ............................................................................................................................................ 15
Wage Gross to NET Calculator on ROS.............................................................................................................. 15
Plain Language Tax Guides ............................................................................................................................... 15
APPENDIX 1 ......................................................................................................................................................... 17
Page 2 of 19 15194 Tax Consultation Response final
Introduction
We in ISME welcome this consultation as it is part of the process to put entrepreneurship back at the top of the
Government’s agenda. It is reassuring that policymakers have realised the importance of a thriving private sector
and of an equitable and encouraging taxation system. Ireland will revive and thrive through more entrepreneurs
and better policies, taxation and otherwise, for all business sectors.
Since the 1970s and 80s the country has benefited hugely from the State’s FDI policy resulting in the set-up of
hundreds of companies and thousands of highly paid jobs. Ireland’s competitiveness was one of the best in the
world in the early 90’s. One of the key pillars in that competitiveness was the taxation policy.
Currently the concern is that the key pillar of Irish competitiveness, when it comes to foreign direct investment,
corporate tax rates, is under attack. Many rival jurisdictions, including the UK, are making a much stronger pitch
for overseas investment by reducing their corporation tax rate and offering a wide range of incentives in areas
such as research. We cannot depend on FDI continuing at the rate it did in the past.
Therefore Ireland needs to grow its own entrepreneurs. We need to use our tax system more effectively to draw
on the increasingly large pool of Irish-born managers, skilled professionals, and entrepreneurs working both at
home and overseas.
As we know from previous experience in the 1990s many Irish ex-patriates with young families were drawn back
home. However in 2015 they will also want to be assured that the education system remains in good order,
hospitals are safe and efficient, and that property is available to rent or buy at reasonable prices.
So encouraging home-grown, but foreign trained, entrepreneurs is key to the next stage of this country’s recovery
as well as the need through our education system to create an emerging generation of entrepreneurs running
into thousands.
The State’s role in this is making sure that our competitiveness is not hampered through the high level of the
price of its own services and through an equitable tax regime, which encourages business, both start-ups and
established small and medium enterprises.
We in ISME would also recommend that Government initiate a programme of ‘cultural change’ towards
entrepreneurship. Too often entrepreneurs are wrongly perceived in a negative light, and, as recently seen,
included in the same category as the corporate greed demonstrated by big business in the Clery’s liquidation.
This must change. The efforts of real entrepreneurs, who risk their own resources, create businesses and jobs,
must be recognised and rewarded, and this is true both for policymakers at all levels and for society at large.
SME’s throughout the Country are central to the recovery and are central to the realisation of opportunities.
SMEs comprise 99.7 per cent of all employer firms and account for almost 70 per cent of private sector
employment. SMEs are also key for the creation of new jobs: 67 per cent of all new jobs created in Ireland are in
businesses which are in the first five years of existence.
SMEs are the lifeblood of the economy and the commitment and hard work of people owning, running and
working in SMEs have contributed greatly to the current turnaround in Ireland’s economic fortunes. The economy
is growing, stability is being restored and we now have the opportunity to have more people in work in Ireland by
2020 than ever before. SME’s are at the heart of this growth.
During the period of austerity a number of measures have been introduced in budgets, increasing the cost
burden for employers.
? The Redundancy Rebate was abolished entirely.
? Changes were introduced to Illness Benefit, placing more pressure on employers.
? In addition the Employers’ PRSI reverted to 8.5pc for some Class A workers, a doubling of the cost.
? The Abolition of Employer PRSI relief on employer pension contributions for employees.
Page 3 of 19 15194 Tax Consultation Response final
As part of this consultation it is imperative that these changes be reversed to assist in the creation and
sustainability of jobs.
The importance of intermediary business organisations must also be recognised. Many SMEs would not exist
without the irreplaceable counselling and advice they receive from our business association, which also plays a
key role as an interface with decision makers. No strategy, taxation or other, will really succeed unless it
recognises and supports not only the role of entrepreneurs, but also the importance of their business
organisation. That is why the success in the implementation of the actions from this consultation depends to a
very large extent on the full involvement and cooperation with business organisations. ISME and its members are
ready to do our part in this respect.
In submitting the Association’s reply we have consulted with SME owners and managers throughout Ireland. The
issues and points included in our response paper are a distilled version of many of the observations made and,
while not strictly adhering to the sequence of questions as asked, represent the views and answers of Irish SME
owner managers.
ISME, July 2015.
Page 4 of 19 15194 Tax Consultation Response final
In the beginning….
To begin with, if we believe that entrepreneurship is good for the country, then the tax system should be designed
to encourage good entrepreneurship. Also, tax measures that encourage entrepreneurship will inevitably pay for
themselves – a win-win result.
However, the likelihood of entry into self-employment, the basic level of entrepreneurship, is being stymied by our
tax and social welfare system. The incentive to start, finance and run a business is negatively affected by the tax
regime. The underlying principle of taxation is EQUITY and FAIRNESS, all treated equally. Same income – same tax.
Instead self-employed people in Ireland continue to be discriminated against in terms of tax credits, USC and PRSI
rates.
Budget 2015 actually worsened the relative position of low income self-employed. A self-employed single person
on an income of €15,000 now pays almost 8 times more tax and PRSI than an employee on the same income and,
as we see below, has a lower entitlement to social welfare benefits.
In a similar fashion of discrimination, if a business fails, the social protection system also treats the entrepreneur
differently, denying them any form of ‘safety net.
Currently ‘unemployed’ employees and self-employed are treated differently under the social welfare code, as
follows:
The failure to provide supports to entrepreneurs, who have lost their livelihoods, sends out the complete wrong
message in promoting an enterprise culture and disregards and disrespects the significant contribution of these
individuals to the economy, while hampering ‘second chance’ entrepreneurs.
The Tax System must support business owners and entrepreneurs, not treat them differently to other citizens.
EMPLOYEE
? Immediate entitlement to benefits
? No means test.
? Personal savings not assessed.
? Other income not assessed.
? Cohabitee income not assessed.
? Value of All Property totally ignored.
? Invalidity – covered.
? Disability – covered.
SELF EMPLOYED
? No immediate entitlement.
? Fully means tested.
? All savings fully assessed.
? All Income fully assessed.
? Cohabitee income fully assessed.
? Value of property, other than family home
fully assessed.
? Invalidity – Not covered.
? Disability – Not covered.
Page 5 of 19 15194 Tax Consultation Response final
ENTREPRENEUR’S RISK ALLOWANCE, Tax System and Self-employed & Proprietary directors.
Entrepreneurs are motivated by opportunities where they perceive that the potential rewards outweigh the risks.
The current Irish tax system, where entrepreneurs can pay up to six times as much tax as their PAYE counterparts,
does not incentivise self-employment. The tax system must be revised to incentivise risk taking.
This blatant discrimination of the self-employed has been the subject of a ‘Dear Taoiseach’ letters campaign
1
conducted by ISME. The campaign proved to be very successful with a large number of SMEs sending the template
letter to the Taoiseach’s office and also sharing the content on social media. The level of support for the campaign
highlights the frustration felt by the self-employed in relation to this issue.
The incentive to start, finance, expand and run a business is affected by the tax regime. The tax environment for
SME entrepreneurs has deteriorated since the beginning of the recession and, if not addressed, will slow down any
recovery.
The tax code has for many years discriminated against Proprietary Directors, preventing them from availing of the
normal PAYE tax allowance. This indicates reluctance on the part of the authorities to recognize the significant
contribution of entrepreneurs and acts as a disincentive for individuals to set up their own businesses.
Employees are entitled to claim an additional tax credit (currently €1650). The credit is not available on amounts
paid by a company to a proprietary director or to the spouse or civil partner of the person paying the income.
This allowance was introduced in the tax year 1980-81 at the rate of £400 (€508) by the Minister for Finance,
Michael O’Kennedy who said:
“I am providing a special Schedule Employee Allowance of £400 for each PAYE taxpayer in order to improve the tax
progression for these taxpayers and also to take account of the fact that the self-employed generally have at
present the advantage of paying tax on a previous year basis. I intend to exclude from this provision those
Schedule E taxpayers in a position to control their own remuneration or that of their spouses, for example
directors of proprietary companies. This Schedule E employee allowance is also intended to take account of the
case made by ICTU that the present general scheme of allowances discriminates against employees and in favour
of other taxpayers.”
2
There were high rates of inflation at that time, running at an average of 18.1%. The assessment of self-employed
persons on their income of the preceding year conferred a significant advantage. This no longer applies as self-
employed are now assessed on their current year’s income and are also paying preliminary tax.
The employee tax credit of €1,650 means that self-employed taxpayers pay almost €32 per week more in income
tax than an employed taxpayer on the same income.
There is also a USC disparity of 3% between the employed and self-employed for income in excess of €100,000.
There is no justification for this disparity. It is blatant discrimination against the self-employed.
Allow Proprietary Directors and Self-employed to avail of an allowance called Entrepreneur’s Risk Allowance
similar in value to the normal PAYE Allowance.
Start-up unused tax credits.
No account is taken in the income tax codes of the reality that many entrepreneurs might have paid themselves a
subsistence salary, or nothing at all, for several years in order to build their business.
1
‘Dear Taoiseach’ letters see Appendix 1
2
Section 3 of Finance Act 1980.
Page 6 of 19 15194 Tax Consultation Response final
Many entrepreneurs are forced, through economic circumstances or decide to take a minimal salary from their
business in the first years, not fully using all their available tax credits and standard rate bands in those years.
The tax system could allow entrepreneurs to carry forward their unused tax credits and standard rate bands to
future years.
Social Welfare system and Self-employed & Proprietary directors.
While we recognise the essential role of entrepreneur and the SME, there continues to be a stigma around the
failure of a business, rather than seeing it as a “badge of honour” as in other countries.
To encourage more entrepreneurs to start a business and take the risk they should be afforded an equal level of
protection as their employees in the event of business failure. The lack of sufficient Social Welfare supports to
entrepreneurs who have lost their business and livelihood sends out the wrong message in promoting an enterprise
culture and disregards the significant contribution that these individuals have made to the economy.
A voluntary PRSI rate for self-employed should be created, such as a variation on PRSI Class A, could be used to
allow self-employed people to make a combined contribution both as an employer and an employee. This would
need to be introduced on a voluntary basis and could be promoted and encouraged over a period of time to gain
traction.
In many European countries, self-employed people opt-in to the social insurance scheme, with their rates/taxes
varying depending on the nature of their business. In France the self-employed can benefit from a range of benefits
including family; health; illness; and pensions. There are exemptions for unemployed people starting up a business.
The tax for Micro-enterprises is calculated on a % of their turnover.
In the USA, both the employed and the self-employed pay a Social Security tax. In general the self-employed pay
twice what the employer pays for an employee with some exemptions. However there is a lower rate of Social
Security for self-employed creating employment.
We recommend the following:
? Self-employed and proprietary company directors be allowed choose a higher PRSI contribution for
themselves to guarantee equal status if injured or unemployed. This can be introduced as a simple choice
of opting in or out of an improved benefit system.
? The method of assessing the self-employed for Jobseekers allowance should be simplified with regard to
income, spousal income, assets and savings.
? A national awareness and information campaign should be conducted, aimed at the self-employed in
relation to entitlements and benefits and the effect of voluntary contributions.
2
nd
Starters –‘startover’.
Specific financial supports/initiatives should be available for second starters for example, the introduction of a
Social Protection “Start Over” initiative as called for by the Advisory Group on Small Business where, for a defined
period, an individual could legitimise their tax/earning status on the basis of forgiving the past and moving forward.
Penalties could be increased in the event of any fraudulent declarations.
The discrimination against the self-employed in the tax system must be addressed so that potential entrepreneurs
know that the work and hardship of setting up a business could eventually be worth the effort.
Page 7 of 19 15194 Tax Consultation Response final
CGT and CAT issue
In Ireland there is no distinction made between entrepreneurial gains and purely speculative, non-productive
gains.
Similar to income tax, no account is taken in the capital gains tax codes of the reality that many entrepreneurs
would reinvest gains in enterprise sales, should the tax system be more supportive.
Inheritance threshold levels are currently too low and should be increased to reflect current house prices. The tax
treatment of family businesses being passed on to the next generation should also be reviewed and reformed to
better suit modern businesses.
Businesses must be able to be sold on without experiencing penal rates of taxation. CGT retirement relief has seen
significant restrictions imposed on the value that can transfer tax free if the individual is aged 66 or older. These
restrictions impose a reduction in the availability of the relief to a maximum of €3m and €500k for transfers to the
next generation and third parties respectively.
The impact of these can result in tax liabilities of 33% on values in excess of the thresholds, creating a major
disincentive to potential successors. A new investor in an existing business brings an impetus which will inevitably
lead to expansion and job creation, so the situation is counter-productive.
The maximum effective tax rates on business succession transactions across Europe range from 0% to 4.5%, without
age limits.
We recommend changes to the CGT and CAT to allow and encourage business succession and would facilitate family
businesses being passed through the generations without the imposition of a burdensome tax liability on the
business.
The rate increase in Budget 2009 was the first rate change since Budget 1998 when the rate was decreased from
40% to 20%. The rate of CGT has been increased by 65% in less than 5 years.
Despite the increase in rates, there has been no commensurate increases in yield. For example, the increase from
30% to 33% introduced in Budget 2013 was expected to yield an additional €50m in 2013. While we agree that the
yield is not solely determined by the rate of CGT, in this instance the revenue actually fell by €48m from 2012 to
2013 showing a negative turnaround of €98m.
When the rate was reduced to 20% important reliefs were withdrawn. A key relief for business was roll over relief
– CGT could be deferred when the proceeds of a sale of a business asset were reinvested in replacement business
assets. Business badly needs reinvestment that has long been deferred with the recession, roll over relief should
be reintroduced. The lessons of the last recession on the 1980’s need to be re-learned, that investment needs to
be properly incentivised for investment to happen, and for there to be increased liquidity in capital transactions,
and this requires lower rates of CGT.
CGT must be restructured to support enterprise and investment by the re-introduction of inflation indexation relief
and the re-introduction of “roll-over relief” for re-investment. Both were considered and supported by the
Commission on Taxation.
This would limit CGT to ‘real’ gains in asset values by excluding the impact of inflation as measured by the Consumer
Price Index (CPI).
CGT is currently too high and should be reduced, indexed and allow roll over relief.
Page 8 of 19 15194 Tax Consultation Response final
Inheritance Threshold Levels
Inheritance threshold levels are currently too low and should be increased to reflect current house prices. The tax
treatment of family businesses being passed on to the next generation should also be reviewed and reformed to
better suit modern businesses.
Retirement relief is a useful tool in that it encourages passing businesses from older entrepreneurs to younger
business people. The €500,000 threshold is far too low, however, and needs to be raised. Also, the clawback for
amounts greater than €500,000 means a negative result for businesses in this position and the threshold should be
allowed with no clawbacks for excess.
Start-Up Relief for Entrepreneurs (SURE)
The SURE provides tax relief for specified individuals who invest in companies that are carrying on trading activities
coming within the EII scheme (Employment and Investment Incentive). There is currently a low level of usage of the
scheme which indicates that changes need to be made to promote its uptake. The scheme is intended to incentivise
Entrepreneurs to leave employment and start their own business and this objective must be supported and
prioritised.
Provisional figures for 2013 show that 65 companies participated at an exchequer cost of €1.3m.
The condition that states that the investor must have been in employment (apart from one year prior to investing
in the business) is too restrictive and excludes:
? Employees who for example are made redundant or leave employment and have not set up the new
business in the tight timeframe i.e. are not employed for more than the one prior tax year
? Self-employed individuals with no employment in the prior years
The condition that the individual has to have employment income in the prior year’s qualifying for relief should be
removed. This would include previously employed and self-employed individuals on equal basis and the likelihood
of successful business ventures would increase.
The investment must be made in two tranches even though the grant aid comes in 3 stages. This causes practical
difficulties and the 3rd stage of grant aid can be paid outside the time limit for investment which has the effect of
prohibiting further SCS investment. To rectify this allow the investment to be paid in three tranches and amend the
tax legislation to allow investment timing and stages to be the same as the grant aid
The individual must become a full time director/employee of the new company in the tax year in which the
investment is made or within 6 months from the date of the investment. This is too short a period of time, therefore
allow a one year time limit during which the investor can become a director/employee of the company invested in.
The exclusion for individuals who have previously owned 15% or more of the share capital of another trading
company in the year prior to investment is unfairly restrictive and could be changed to that no prior SCS shares
were held.
The maximum per year of €100k should be removed as this is a tax credit, not a total refund i.e. you will get a max
of 41% of this. So the people paying higher taxes are punished for doing so.
The maximum relief per annum of €100,000 is too restrictive and minimises potential investments. This should be
increased to €150,000. This would make the maximum relief equal to that available in the Employment Investment
Incentive Scheme.
Criteria for being a qualifying company is overly restrictive and should be opened up to all sectors and industries.
Allow some of the refund to be used to cover part of the investment as often, recently unemployed persons do not
have sufficient funds to invest in a company.
Page 9 of 19 15194 Tax Consultation Response final
Employment Investment Scheme
The Employment Investment Incentive Scheme (EIIS) is a tax relief incentive scheme that provides relief for
investment in certain corporate trades. The scheme replaced the Business Expansion Scheme (BES) and was
announced in Budget 2011.
We in ISME hold the view that the scheme is not resulting in the appropriate levels of involvement by SMEs, despite
the moderate success subsequent to Budget 2015 changes. The conditions are still too restrictive, even keeping in
mind the EU State Aid rules.
For example, an investor receives 30% tax relief on investment, then 11/41sts (nearly) four years later if the
employment has increased. If an investment is made during 2014, receipt of the relief of 11/41sts is delayed to the
end of 2018 only if the employment has increased.
This restriction could be removed so that the maintenance of employment leads to qualification for the relief.
In addition there is a lifetime cap of €10m for BES/EII investments. This cap should be doubled to €20m to allow
successful enterprises to continue to raise EII funds.
Investors currently receive tax relief of 30% in Year 1 and must then wait 4 years for the remaining 11%. This means
the investment is less attractive to investors. Increase the tax relief on Year 1 to 41%.
The holding period of three years is too short. Increase the holding period to 7 years.
Encourage employee share-based remuneration in private companies
When compared to other jurisdictions, the regime in Ireland is extremely uncompetitive. It is now very difficult to
attract entrepreneurs to establish a business in Ireland.
Improved employee share ownership schemes will assist employee retention in SMEs and facilitate the alignment
of interests between entrepreneurs, owners and key employees. For example the UK Employee Shareholder Relief
scheme allows the first £2k of shares received by an employee to be exempt from UK income tax and NIC, and the
first £50k of any capital gain arising on a future disposal of the shares is exempt.
The UK Government appointed Graeme Nuttall as their Independent Advisor on employee ownership, and “the
Nuttall Review”, published in July 2012, was commissioned “to identify the barriers to employee ownership and
help find the solutions to knock them down”.
General benefits of Employee Share Ownership
To quote former Deputy Prime Minister, Nick Clegg, “Businesses that are owned by their employees produce more,
grow faster, keep their workforce happier, and pay staff more fairly. Graeme’s report makes clear that sharing
ownership means sharing success.”
Employee Share Ownership:
? significantly improves employee commitment which in turn drives stability while significantly increasing
productivity, and
? considerably reduces absenteeism.
There is a competitive disadvantage for Entrepreneurs versus PLC’s when hiring key staff
The current share based schemes in Ireland are suited to PLC’s but not private companies. This places
entrepreneurs and High-Potential-Start-Ups at a competitive disadvantage versus listed companies when
competing for staff.
Page 10 of 19 15194 Tax Consultation Response final
Due to the inability to offer effective share-based remuneration, entrepreneurs have greater difficulty than listed
companies when seeking to attract suitable skilled staff from within the global talent pool. The recently published
Digital Technology Index indicated that it was easier for indigenous technology firms to raise capital than recruit
key staff.
Importance for Entrepreneur maintaining adequate level of equity
In order to motivate the original entrepreneur to continue applying their unique skills and expertise to the growing
business, it is necessary that such an entrepreneur maintain an adequate level of equity. When accessing various
rounds of Venture Capital and other funding, the shareholding of the entrepreneur can often become diluted. In
many cases Venture Capital investors recognise this, and seek to reflate the shares of the original entrepreneur
with share options or other share awards. However, reflation is currently unattractive because of the immediate
tax liabilities triggered.
Current Tax Treatment of share based remuneration in Ireland
When employees receive shares or exercise share options, immediate personal tax liabilities, typically at 52% of the
market value of the shares are triggered. This tax must be paid by the employee via the PAYE system and is
deducted from their net pay. In the case of listed companies, some of the shares received can be sold to discharge
the tax liabilities; however, the key issue for private companies is that there is no readily available market for the
shares. In practice the immediate tax liabilities triggered result in little or no use of employee share-based
remuneration by private companies.
Importance of reducing costs and administrative burdens and ensuring flexibility
In addition to addressing the timing of triggering tax liabilities, it is important that any scheme targeted at
entrepreneurs would be straightforward and that the administrative burdens would be low. The existing share
based schemes in Ireland are suited to schemes involving a minimum of 50-60 employees, and high costs and
significant administrative burdens are imposed by the need for Revenue approval and an external administrator.
The existing schemes must be provided to all employees and therefore lack the flexibility required to target the
incentive towards key employees.
UK Enterprise Management Initiative
The UK Enterprise Management Initiative provides for both a tax reduction and deferral of the timing of tax
liabilities for companies with less than Stg30 million in assets and less than 250 employees. The lifetime employer
limit in terms of value of shares is Stg3 million, while a lifetime limit of Stg250k per employee applies. Companies
have the flexibility to target the incentive at key employees. Property development, hotels and professional service
companies are excluded.
In order to make employee share-based remuneration more attractive to entrepreneurs, introduce a scheme with
a framework similar to the UK scheme, as outlined above, that would provide for a deferral of the triggering of tax
liabilities until there is a suitable market for the shares or until there is a sale of the business.
Specifically, companies with:
? less than the equivalent of Stg30 million in assets, and
? less than 250 employees,
This could provide share based remuneration to employees:
? up to a ‘lifetime’ company limit of the equivalent of Stg3 million,
? a ‘lifetime’ limit of the equivalent of Stg250k per employee, without triggering immediate tax liabilities.
Page 11 of 19 15194 Tax Consultation Response final
The owner-manager entrepreneur, as an employee, would also be entitled to receive share-based remuneration
up to the employee limit without triggering tax liabilities. This would facilitate the practice of Venture Capital
investors reflating the shareholding of the original entrepreneur.
Reduce costs and administrative burdens, and ensure flexibility
In order to reduce costs and administrative burdens, and to ensure flexibility, key design considerations include:
? Revenue notification as opposed to Revenue Approval,
? No requirement for external administrator, and
? Flexibility for company in terms of selecting employees to offer the scheme to.
? Promote the proposed new scheme via an awareness campaign
The new scheme would need to be promoted with an awareness campaign. In the March 2013 Budget the UK
Government announced that it will provide €50M annually from 2014-15 to support employee ownership models
and incentivise growth in the sector.
Cost Considerations
Employee share based remuneration within private companies is almost non-existent; therefore there are no timing
costs of any significance from the perspective of allowing a deferral of the tax payment.
Any costs associated with the proposal are timing costs, no reduction in tax rates is proposed.
State-Aid Considerations
The UK Scheme, the Enterprise Management Initiative, received EU approval under State-Aid rules. It is envisaged
that this scheme would be subject to State-Aids approval.
In the US if an employee holds an Incentive Stock Option for at least two years from the grant of the option and
holds the shares for at least one year following the exercise of the option, no income tax applies on the grant or
exercise of the option. Instead, capital gains tax (at 20%) will apply when the shares are sold. No more than
$100,000 worth of shares can become eligible for exercise in a calendar year.
In the UK, in general PAYE (and sometimes National Insurance) are payable on share options. However SMEs can
avail of the Enterprise Management Incentive scheme (EMI). The granting of such options is tax free, income and
NHI and on exercise, can be subject to Entrepreneurs’ Relief in relation to CGT.
Share options with a market value of up to £250,000 may be granted to a qualifying employee of a qualifying
company, subject to a total share value of £3 million.
In addition, the UK Government has introduced a new “employee shareholder” status who will have different
employee rights and shares worth a minimum of £2,000 in the company in which they work. Gains on up to £50,000
of shares acquired by employee shareholders will be exempt from capital gains tax.
Corporation Tax: Start-up Relief
The link between the corporation tax relief and the company’s employers PRSI liability is limiting based on the fact
that a large number of start-up/entrepreneurial companies are unlikely to have significant levels of staff in the early
years.
The reality is that the relief is in effect being maximised by FDI companies which can draw from their own group
resources when hiring staff and therefore can maximise the full benefits of the relief. SMEs do not have this capacity
and therefore are missing out on this relief.
Page 12 of 19 15194 Tax Consultation Response final
The “carry forward” rules, which allow any relief not availed of in the first 3 years of trading to be carried forward,
have potentially increased the tax relief for start-up companies.
However, the link between the relief and the company’s employer PRSI liability reduces the availability of the relief
for SMEs, due to low employment levels in their early years, because of prudent management.
We understand the imperative of creating sustainable jobs, however the link should be reconsidered to ensure that
entrepreneurial SMEs can obtain the maximum possible benefit from the relief in the critical early years.
Patent Tax Relief
The removal of the Patent Tax Relief has been detrimental to many SMEs. Replacement reliefs must be introduced.
This is being discussed in another consultation forum.
Up to 2010 the rate of corporation tax on patent income in Ireland was at 0% up to an annual cap for a company of
€5m. This incentive was removed and currently there is no preferential treatment of patent income.
The UK’s “Patent Box” regime has contributed significantly to this turnaround in competitiveness. The objective is
to encourage innovative businesses, both domestic and foreign to invest in Ireland and to locate high value jobs
and activity associated with the development, manufacture and exploitation of patents in Ireland. However, since
the removal of the Patent Box Ireland has become significantly uncompetitive in this regard.
The Patent Box package in the UK provides:
? Profits (income, licence fees, royalties etc.) from qualifying patent interests ( including licence holders) are
taxed at a CT rate of 10%
? The rules are phased in from 60% benefit in 2013 to 100% benefit by 2017
? Any UK company that holds interests in qualifying patents (or certain other intellectual property rights) may
elect into the regime
? If the patented element of a product is minor, 100% of the income arising from the product falls into the
regime.
? If patents relate to the internal processes by which the products are produced or underpin services
provided then the Patent Box regime should still qualify.
? Groups can use Patent Box and continue claiming R&D tax credits.
As part of the consultation on this aspect, ISME will recommend the reintroduction of patent relief for those
companies carrying out “innovation activities” as defined in S541 TCA 1997 (amended by S46 FA 2013), with
appropriate reliefs for SMEs to encourage innovation. Tax rates should be consistent with the CT 12.5% rate and
with the lower CGT rate recommended elsewhere in this document.
PRSI – Lower rate for Employers
The standard rate of employer PRSI is 10.75%. A lower rate of 8.5% applies to employee earnings which are €356
or less per week. As part of the 2011 Jobs Initiative, Michael Noonan reduced this rate to 4.25% until the end of
2013. This welcome support for job creation was not renewed for 2014 and later years, creating a massive negative
effect on payroll costs.
The measure should be reintroduced for a further 3 years to assist in sustaining and creating jobs.
Redundancy Payments.
Amendments have recently been made to the redundancy rebate. Budget 2012 reduced the redundancy rebate
from 60 per cent to 15 per cent for redundancies where the date of dismissal occurred in 2012, while from January
Page 13 of 19 15194 Tax Consultation Response final
1st 2013 the employer statutory redundancy rebate was abolished. In situations where the employer is unable to
pay or refuses or fails to pay the statutory redundancy, the employee can apply for direct payment from the Social
Insurance Fund.
The removal of the rebate has made the redundancy process more expensive for employers. Furthermore, when
the economic cycle enters the next downturn and redundancies escalate again, businesses will be less likely to
survive the downturn without the rebate.
If young SMEs are to survive near-terminal mistakes, or fluctuating demand, they need to be able to reduce staff
costs quickly and cheaply when necessary. The contingent cost of redundancy if the business was to experience a
downturn or failure is a big concern and can be a huge drain for a small company. Large severance packages also
make it much harder for start-ups to recruit the professional managers that can take them into the big league.
Experienced executives are loath to forgo such reassuring goodies by resigning.
Surely every encouragement should be put in place to create jobs and take people off the dole even if,
sometimes, that period of employment is finite. We recommend the reintroduction of a redundancy rebate, (paid
for by employers through employers PRSI) which was reduced and then abolished by the current government.
Training in SMEs
The National Training Fund (NTF) was established in 2000. The National Training Fund Act, 2000 describes the
purpose of the NTF as “to give skills to, or raise skills amongst those in, or seeking employment”.
3
Employers pay for this National Training Fund. It is resourced by a levy on employers of 0.7% of reckonable earnings
of employees in employment classes A and H (approximately 75% of all insurable employees), which is incorporated
and collected through the employer’s PAYE/PRSI system. Allocation for the Fund in Budget 2015 was €362 million.
While employers fund the operation of the NTF, on an annual basis, SOLAS receive approximately 77% of the
expenditure. In recent years, many projects have also been funded through contributions from the National
Training Fund, including €22 million for Springboard, €20 million for Momentum and €5 million for ICT skills
conversion course. In other words, the NTF is almost solely used to upgrade the skills of unemployed people.
Given that the NTF is funded by employers and also intended to support raising skills of those in employment, and
that it was always envisaged that the fund would be used 50/50 between unemployed and upskilling the employed,
ISME advocates that a commitment be made to ensure up to 50% of funding from the NTF is committed to up-
skilling those already in employment as the unemployment rate continues to fall.
The challenge for SMEs is the retention of staff who have been up-skilled at a cost to the SME. Larger businesses
can afford to out-bid SMEs for these newly skilled staff and therefore the benefit of training is lost to the smaller
enterprise. To compensate the SME for the training costs it would be beneficial to give an additional ‘double’
corporation tax relief to SMEs for the cost of training staff in order to support investment in a skilled workforce.
Peer to Peer Lending
The challenges faced by SMEs in relation to accessing credit are well documented. Peer-to-Peer (P2P) lending
improves this situation by providing another avenue of funding for business owners to explore. As well as assisting
businesses, Peer-to-Peer lending allows individuals who aren’t typically involved in investing in businesses to get a
greater interest return on their savings.
The UK government decided to lend £20m to small businesses through FundingCircle.com (A UK P2P website) in
March 2013. Within 2 months of the announcement, FundingCircle.com lending increased from £1m per week to
3
http://www.irishstatutebook.ie/pdf/2000/en.act.2000.0041.pdf
Page 14 of 19 15194 Tax Consultation Response final
£5m. The raised levels of awareness and credibility from the governments lending promoted P2P lending as an
option and led to a huge increase in the funding available via this method. A similar funding injection into a P2P
company by the Irish Government would increase awareness of this type of lending and also make it more attractive
to investors and borrowers.
Peer-to-Peer lending is currently unregulated in Ireland. This makes investing in P2P lending less attractive.
The UKs Financial Conduct Authority has regulated P2P lending in the UK from April 2014. These regulations could
act as a template. ISME requests that a set of regulations for Irish P2P lending be created and implemented as soon
as possible.
Awareness and investment levels need to be raised so that P2P funding can become a credible alternative to bank
funding for Irish SMEs.
ISME recommends that the Government follow the UK successful example of promoting the P2P lending industry
through a cash investment. This investment would increase awareness of this funding stream and encourage savers
to invest.
Home renovation incentive
The Home Renovation Incentive provides tax relief for Homeowners through an Income Tax credit at 13.5% of
qualifying expenditure on repair, renovation or improvement works carried out on a main home by qualifying
Contractors. In Budget 2015 the scheme was extended to rental properties.
This incentive can be improved by;
? The tax credit should be increased to 20% to make it more attractive.
? Increase this maximum to €50,000 to increase activity in the construction sector and extend the HRI scheme
to Landscaping and gardening activities.
? Reducing the minimum qualifying spend will attract more people to contract work from tax-compliant
providers and reduce shadow economy activity.
? ISME recommends that that minimum spend be halved to €2,203 plus VAT.
9% VAT Rate
The 9% VAT rate in the services industry has been extremely effective and should be maintained. The use of this
reduction in rates of VAT should be investigated for other areas where there is a failure or potential failure in the
market.
Interest on Late Payment of taxes.
The interest rate charged by the Collector General on late payment of taxes is currently over 10% p.a., which is seen
as a penal rate. In many cases, businesses that don’t pay their tax on time is as a result of waiting to be paid
themselves and therefore don’t have the funds available when required. Applying this penal rate only compounds
the problem. Furthermore “interest on the late payment of tax” is not a tax deductible expense, while all bank
interest for business purposes is tax deductible.
The Collector General Office states that they deal with each individual on a “Case by Case” basis, so applying interest
is not applied evenly across the board to each taxpayer. Some are not charged, while others get charged all the
time as it depends on the official dealing with the case and the level of leniency afforded to the taxpayer. This
situation creates an uneven playing field.
Page 15 of 19 15194 Tax Consultation Response final
A solution would be to reduce the interest rate to 4% and apply it across the board in ALL cases where tax is paid
late and allow the interest payment to be tax deductible. This would have the effect of treating all taxpayers equally,
reduce appeals and disputes, thereby reducing administrative costs.
Commercial Rates
The current commercial rates system is characterised by a distinct lack of flexibility based on ability to pay or
commercial circumstances, which is stifling profitability. There is a need for amendments to the Valuation Act to
allow for an appeal to rates based on a change in economic circumstances and also a further change to allow the
relevant local authority managers to address hardship cases. The Department of Environment’s Audit Service has
reported that the 2009 rates arrears have more than doubled. The reason is simple, businesses do not have the
money.
? We need an immediate implementation of the Review Group on Local Authorities
4
with a substantial part
of the savings ring-fenced for rate relief and
? The total cost of running Local Authorities needs to be substantially reduced and this reduced figure needs
to be spread over all sectors of the community.
The net result of the above should lead to a 15% reduction per annum over three to four years on the current rate
payers. In essence this only requires a 5% reduction in Local Authority costs in those years.
The savings required to deliver the above can be achieved by
? implementation of the recommendations of the Review Group on Local Authorities;
? a reduction in the number of Local Authorities to reflect one Local Authority per 250,000 people; and
? a root and branch analysis of all spending within Local Authorities with a view to achieving the desired
results.
The current system is working against employment, is working against jobs and is working against businesses. These
recommendations will give is a fairer, more equitable and an affordable system that allows Local Authorities to get
on with doing the job and small and medium businesses to get on with providing employment.
Wage Gross to NET Calculator on ROS
Currently small businesses spend a disproportionate amount on payroll software. To assist the employer and
employee who negotiate wages on a ‘net basis’ a tax calculator could be introduced on the Revenue site and
promoted. Tax compliance costs for small businesses in Ireland could be reduced by a Gross to Net and a Net to
Gross calculator on ROS.
Plain Language Tax Guides
A recurring theme for aspiring entrepreneurs in Ireland is that it is difficult to get the information they need as and
when they need it. The owner/manager of a small business and entrepreneur needs to get to grips quickly with a
broad range of areas so that she is well informed from the start.
However, if the information available is not written in Plain Language, nor written specific to the target audience,
often being overly legalistic, technical or complex, then it acts as a barrier to business set-up.
A Plain Writing Act was introduced in the US in 2010 which requires that federal agencies use “clear Government
communication that the public can understand and use”. In the UK the Plain English Campaign, advocated by a
4
Report of the Local Government Efficiency Review Group
Page 16 of 19 15194 Tax Consultation Response final
private sector commercial entity, resulted in almost all UK Government departments and public bodies having
received a Crystal Mark - which is the Plain English Campaign’s seal of approval.
There is an opportunity now to enhance the level of information available and the format in which it is produced
through a Plain Language initiative involving all government departments and agencies dealing with small
businesses.
? Considerable benefits could be achieved, from what is a relatively low cost initiative:
? Improved small business capability with strong understanding of the need to know basics;
? Enhanced understanding of regulations and tax compliance in particular, which should result in stronger
compliance and a reduction in firms (sometimes inadvertently) operating outside of the system, for
example in employment matters.
? Enterprises will be better equipped to Start Right;
? Improved communications between government and businesses – increased clarity, and reduced
frustrations;
? Reduction in government spending and resources - less resources used in answering calls and explaining
already available pieces of information.
It would be useful, as part of this move to improve the tax environment for entrepreneurs and SME business
owners, if Revenue produced plain language guides to all tax-related business matters. This would assist in start-
ups, help ease the burden of compliance on SMEs and ensure that they do not waste time trying to understand
complex tax instructions.
ISME recommends that immediate plans to rewrite all Revenue leaflets in plain language are put into place.
Page 17 of 19 15194 Tax Consultation Response final
APPENDIX 1
25
th
November 2014.
OPEN LETTER TO AN TAOISEACH, ENDA KENNY, TD.
Dear Taoiseach,
“I have a dream”
Help fight discrimination.
I know that there are 9 grounds for discrimination in Irish law and I am being discriminated against and I am asking
for your help to right this wrong. I have been on to the Equality Authority but they say they can’t help me.
Taoiseach, they are deducting 8 times more from my wage than from my colleague on the same wage in the same
business. They say that it is because of my status.
You see, Taoiseach, I don’t know how to say this, but I’m self-employed.
INCOME TAX (PAYE, USC, PRSI)
My colleague (Employee) €15,000 €285
Me (Self-Employed) €15,000 €2,235
And even when I reach the heady salary of a public servant - €50,000 there is still an 11% differential against me
because of my status (self-employed). Recent Revenue figures show there are 105,000 of us self-employed on less
than €50,000.
Why then must a self-employed single person on an income of €15,000 pay 8 times more tax than her employee
on the exact same income and also have a lower entitlement to social welfare benefits.
You say that we are near to your heart.
“Entrepreneurs are the backbone of the economy” and “we will make Ireland the best small country in the world
in which to do business”, just two of your quotes relating to Irish entrepreneurs and self-employed people who
work in, finance and run SMEs. Your support is most welcome.
Now, if you will forgive me for being so blunt; put your money where your mouth is.
Tax us in the same way as everyone else in the economy. The underlying principle of taxation is EQUITY and
FAIRNESS, all treated equally. Same income – same tax.
I am not asking for special privilege, I am not looking for ‘double Irish’, I am not seeking ‘Apple status’. In fact, all I
ask for is FAIR PLAY.
So, Taoiseach, we who are discriminated against, the self-employed demand equality. So, what are you going to do
to stop this blatant discrimination against the very people who you want to create jobs, the self-employed?
Yours faithfully,
Self-employed.
Page 18 of 19 15194 Tax Consultation Response final
January 2015.
An Taoiseach, Enda Kenny, TD.
Government Buildings
Merrion Street,
Dublin 2.
Dear Taoiseach,
TAXATION OF SELF EMPLOYED & PROPRIETARY DIRECTORS
SAME INCOME - SAME TAX
The underlying principle of taxation is EQUITY and FAIRNESS, all treated equally. Same income – same
tax.
As a business person I am asking you to change the way that I am discriminated against under the Irish
tax code.
In the Table you can see the effect it has on Self-employed at €15,000 income paying 8 times more than
an employee. (684% more)
At a salary of €50,000 and €100,000 the differential is 11% and 4% respectively.
TABLE 1. INCOME TAX (PAYE, USC, PRSI)
Employee on €15k €15,000 €285
Self-Employed on €15k €15,000 €2,235 684% More
Employee on €50k €50,000 €14,585
Self-Employed on €50k €50,000 €16,235 11% More
Employee on €100k €100,000 €40,384
Self-Employed on €100k €100,000 €42,034 4% More
Employees are entitled to claim an additional tax credit (currently €1650). The credit is not available to
Self-employed or their spouses or civil partners, if paid. This alone means self-employed pay €32 per
week more than employees.
Recent Revenue figures show there are 105,000 self-employed on less than €50,000.
Why then must a self-employed single person on an income of €15,000 pay 8 times more tax than
her employee on the exact same income and also have a lower entitlement to social welfare
benefits.
Now on top of the extra tax, the self-employed suffer a minimum charge of €500 PRSI and pay 4 per cent
of our income; employees pay no PRSI if their income is under €352 per week and a percentage
thereafter.
As you can see, the discrimination against us self-employed and proprietary director taxpayers is more
extreme at the bottom of the income scale, which is what economists call regressive.
Page 19 of 19 15194 Tax Consultation Response final
Taoiseach, not alone is the system discriminatory but it’s regressive. There is a very strong case
for changing this unfair treatment of self-employed, particularly those on low incomes and, as you
will know, most of us in start-ups take very little by way of income in the early years.
Once again, I ask you to stop the discrimination against us, the self-employed, who in turn employ
thousands.
Yours faithfully,
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doc_882377855.pdf