Budget 2016 was widely welcomed in terms of the measures announced, particularly around personal taxation reliefs in terms of rate reductions to USC and movement of entry points. Below is our summary of the key changes and how these will impact on the Irish SME environment for different business types.
For Start-ups & Self-Employed:
An earned individual tax credit of €550 is to be introduced for the self-employed as they cannot access the PAYE system of credits. There is a commitment to increasing this amount as and when there is an opportunity to do so in terms of budget in the future. This measure should help reduce the unbalanced tax burden on those taking the largest risk in terms of getting new businesses up and running. In addition there is a 3 year exemption from Corporation Tax for new businesses. This will allow the tax burden to be reduced for businesses in start-up phase and creates some headspace in terms of costs, enabling those businesses to invest in growth. Lastly, a reduced rate of capital gains tax (CGT) of 20% is now applicable on the gains of up to €1m (in a lifetime) for the disposal of a business or part thereof. This will enable entrepreneurs to incubate, grow and divest of businesses and re-invest in further new business creation with lower penalties for doing so.
The changes in terms of USC entry point and also in the bands up to €70k earnings will undoubtedly have a positive impact for employees in terms of a lower tax burden. These changes may also lead to less pressures from employees for pay rises as they will benefit from improved NET pay.
Changes to PRSI may also be beneficial for both employers and employees, however the vagaries of these changes may need to be played through before a fuller understanding of their impacts are arrived at. In the short term the most immediate impacts for employers to bear in mind will be the impacts of the increase in the national minimum wage by 50c per hour and also the business planning impacts of the introduction of 2 weeks statutory paternity leave entitlement from September 2016 and any cost implications that this may incur.
For businesses accepting payments:
Over the past number of years there have been a variety of initiatives announced, aimed at driving the uptake of electronic payments as a replacement for more costly traditional payment methods such as cash and cheques. These measures have included, the introduction of SEPA (Single Euro Payments Area) to simplify electronic payments between banks within the Eurozone, eDay whereby government has announced its intent to cease the use and acceptance of cheques, and more recently the announcement that the rounding trial run in Wexford will be introduced nationally. In parallel there has been massive increases in consumer use of debit cards and a steady decline in cheque usage. In this budget, there have been further measures introduced to not only encourage further usage of digital payments but also improved incentives for businesses in terms of their acceptance. These measures include, the abolition of stamp duty on debit cards from January 1st to be replaced with an incremental 12c transaction charge on ATM withdrawals, and the introduction of a higher limit of €30 on contactless transactions from October 31st. These measures should drive increased uptake of debit card payments among consumers as ATM (and consequently cash) use is increasingly costly. On the business side, the long standing issue of electronic payment processing costs, which has acted as a drag on adoption by businesses has been halved, providing further incentive for businesses to meet changing consumer demand. These latest measures will lead to increased customer usage of electronic payments and increasing requirement for businesses to be able to accept electronic payments (and for smaller values!)
Specific sector implications:
The key initiative announced in yesterday’s budget around incentivising innovation and enabling Ireland as an innovation hub. The “Knowledge Development Box” first announced in Budget 2015, will take effect from the enactment of the finance act in the coming weeks and the key element in this is the 6.25% Corporation Tax rate applicable to the development and housing of IP in Ireland. This will encourage technology & R&D investment but also it is worth considering the impacts that this may have in terms of availability and resulting cost of tech talent. It may also have a halo effect in terms of FDI seeking suppliers to service them in the SME space.
The 9% VAT rate for the Tourism sector will be maintained as it will aid competitiveness in terms of costs, particularly where there is an increased volume of tourists as a result of the weakness of the Euro vs Sterling & US Dollar.
For those businesses involved in transport and logistics there is a simplification of Commercial Motor Tax. This should simplify the system and also make it more cost effective and affordable as a cost.
Things to keep an eye out for in the wider economy:
Overall, some of the initiatives announced in Budget 16 will have more general impacts for all businesses, namely:
- Additional ECCE (free childcare) year will enable more people to get back into the workforce, enhancing the quality of available talent. The impact of the reduction in cost overhead for those working parents should create more spend in the economy.
- Almost 3000 additional public servants between Gardai and Teachers will also provide an economic boost in spending
- Increased social welfare allowances around Pensions, Fuel Allowances, Children’s Allowance, Christmas bonus and expansion of free GP care scheme will all create wider access to more disposable spending power in the economy, which should benefit all businesses.
Overall, the budget is widely expansionary for both consumers and businesses & there would also appear to be a range of initiatives and supports for Irish SME’s that will create further growth opportunities in a recovering and expanding market