As part of our Smarter Living for Business series, we're bringing businesses simple ideas to make their business better through insights and industry research from some of the country's most influential leaders and thinkers.
This week we're analysing some of the key issues and talking points for Irish businesses that might arise ahead of the Budget 2016 announcement on the 13th of October.
In a recent survey carried out on behalf of Electric Ireland, SME owners in Ireland reported a number of concerns around Budget 2016, ranging from rising taxes, to the increase in the minimum wage, to reductions in government funding.
Speaking about the Budget to the Small and Medium Enterprises Association in May of this year, Minister for Finance, Michael Noonan said, “The majority of available resources will be used to reduce tax on work” and that the government would “start the process of reducing the gap between PAYE employees and the self- employed that arises primarily as a result of the PAYE tax credit.”
The second point certainly sounds like good news for small business owners, but what does it mean in practice? We’ve sifted through the available evidence to give you an idea of some measures that could be introduced in the forthcoming Budget, and the impact they could have on your business.
Reduction in taxes
It’s been widely reported that the government has an extra €1.5bn to play with in Budget 2016, and we can expect about half of that to go on reducing taxes and the other half on increased spending. One change that will be welcomed by all is the planned reduction in the Universal Social Charge (USC). The indications are the government will reduce the USC, which currently stands at 7%, by at least 1%. It’s unlikely to drop as low as 5%, but a reduction to 5.5% is a possibility.
Reduction in USC gap
The discrepancy between the amount of USC paid by employees and self-employed people has long been a bugbear for the latter. As it stands, once a self-employed person earns over €100,000 in a tax year, they pay a 3% USC surcharge on income earned above that figure, so a proprietary director or self-employed person will pay more tax than an employee on the same salary. The government is expected to reduce this gap, but at the moment we have no real indication by how much.
Change in Capital Gains Tax
Another issue which has a deadening effect on entrepreneurship in this country is our relatively high level of Capital Gains Tax (CGT). CGT in Ireland has risen four times since 2008, by 13% in total, and now stands at 33%. This is in contrast to 28% in the UK, and negligible to non-existent rates in countries like the Netherlands and Belgium. In all of Europe, only France has a similarly high rate of CGT.
The potential money earned through sale of shares is one of the major incentives for anyone considering starting their own business, and it’s one that many owners will struggle for years while paying themselves minimal wages in order to achieve. It’s been argued, with some justification, that our current rate of CGT discourages potential entrepreneurs from leaving a secure salaried job in favour of striking out on their own. A reduction in CGT would immediately make for a more favourable environment for start-ups in this country, and halt the growing migration of high-potential Irish start-ups to the UK.
Another option which the government could be considering is to follow the example of the United Kingdom and bring in some form of entrepreneur’s relief. The UK’s highly successful Seed Enterprise Investment Scheme (SEIS) currently allows owners to benefit from a 10% tax rate for up to £10m earned over their lifetime.
Since it was introduced in 2012, this scheme has seen a huge surge in the number of start-ups raising funds from private sources and has allowed London to aggressively market itself as a world-class start-up hub. SEIS was originally intended to run for five years on a trial basis but has been so successful that it was given a permanent place in UK financial policy in 2014.
With a General Election looming, the government are certainly aiming to come up with a set of financial measures that will have the electorate feeling warmly towards them come polling time. We won’t know the full details until October 13th, but at the moment it looks like SME owners in Ireland can look forward to a Budget which should have a generally positive impact on the business environment in this country.
Are you worried about the Budget? Electric Ireland gives tailored price plans to business customers which means you can work your bills around your business . Fill out a request a callback form and a member of our sales team will get back to you with your very own tailored price plan.