So what’s REALLY in Budget 2013 for small business

It was refreshing to finally hear the Minister for Finance focus on Small & Medium Enterprises (SMEs) in Budget 2013.  For too long, in my opinion, the emphasis of successive administrations has been on foreign multinationals and exporting indigenous businesses.  While that sector should be nurtured it shouldn’t be done at the expense of the nuts and bolts of our economy: the thousands of micro and small businesses that are keeping us afloat.

Unfortunately, there seems to be little substance behind the rhetoric.  Here’s an overview of the 10 Point Tax Reform Plan announced in Budget 2013:

1. “Reform” of the 3 year corporation tax relief for start-up companies

Reform is a bit of a stretch.  What they are proposing is to allow companies to carry forward unused credits.  So if a company makes a loss in the first year it can carry forward credits (presumably employers’ PRSI incurred) to subsequent years.  Superficially this seems welcome, but the relief is overly restrictive to begin with and has little practical value.

2. Amending the close company surcharge

The close company surcharge is a surcharge on undistributed after tax profits.  There are 2 kinds: one on estate and investment income; one on professional income.  It is this surcharge which forces many shareholder/directors to reduce profits to nil each year to avoid the surcharge.  I don’t see this as having much practical value.  All it means is an extra €1,400 of after tax income can be re-invested in the company without attracting the surcharge.

It’s important to note that the surcharge only applies to passive income, such as deposit interest or rental income, and professional services profits.  It does not apply to trading profits of trading companies.

3. Increase of amount of expenditure eligible for the Research & Development credit

This has been doubled to €200k.  This is an important provision but it needs to be coupled with an education programme to inform small businesses how to avail of it.

4. Extension of VAT cash receipts basis of accounting

The threshold for this will increase by €250k to €1.25m.  While it is to be welcomed I thought it could have gone much further, at least doubled and preferably as high as €5m.  Some lobby groups were calling for it to be increased to the small company limit size criteria of €8m.

5. Extension of Foreign Earnings Deduction  (FED) to certain African countries

The FED was probably unnecessarily restricted to the BRICS countries when it was introduced in Budget 2012.  I can’t help thinking though that this is more suited to medium to large organisations rather than small businesses.

6. Extension of the Employment and Investment Scheme to 2020

There’s little substance in this.  There was no indication that it was due to stop anytime soon.  A comparable measure or some sort of seed capital relief for unincorporated entities would have been welcome.

7. Extension of young farmers stock relief

Another one with little substance.  There was no indication that it was to be scrapped.  Notably, though there’s no time limit put on it so no doubt it will be rolled out again next year.

8. Capital Gains Tax relief for farm restructures

A rollover relief of CGT on sales of agricultural land where the proceeds are re-invested in agricultural land and the sale and purchase happen within 2 years is to be introduced.  The initial transaction must occur between 1 January 2013 and 31 December 2015.

9. Review of “carried interest” provisions

What? Yes, I had to go and look it up as I’d never heard of it -S.541C for anyone who is interested.

There was a reduced rate of CGT introduced in 2009 for gains on certain venture capital investments in private companies.  Now, it is going to be reviewed to try and help small businesses access funding.  Presumably this will be achieved by extending the scope of the provision.

10. Revenue/Department of Finance public consultation on reducing the compliance burden on micro enterprises

This consultation is to be welcomed.  All interested parties is in the micro sector – individuals and groupings – should contribute to this.  This is our chance to be heard.

On a quick scan of the consultation paper it would appear that a Single Business Tax is being proposed.

The closing date for the submissions is 28 February 2013.  The consultation document can be found here http://taxpolicy.gov.ie/wp-content/uploads/downloads/2012/12/2012-12-3-Taxation-of-Micro-Enterprises-Consultation-Paper-Final.pdf

Other budget measures that could affect small businesses

Cap on pension scheme contributions eligible for tax relief

Doubling of the minimum PRSI contribution for self-employed

Excise duty rebate for licenced hauliers

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