Budget 2020: Did it strike the right balance for SMEs?

Did Budget 2020 strike the right balance for entrepreneurs, start-ups and SMEs at a time of massive change and a looming Brexit?

In what has to be one of the most difficult Budgets for a Finance Minister, Paschal Donohoe, TD, had to balance the needs of a country struggling with a housing crisis, meeting important carbon targets and preparing for a very likely no-deal Brexit when the UK leaves the EU in less than three weeks.

Crucially, he needs to create the conditions for businesses to grow and thrive.

“The context of a rapidly growing domestic economy set against the backdrop of Brexit, and international trade tensions, has made Budget 2020 one of the most difficult to formulate in some time”

Budget 2020 saw the Finance Minister allocate €1.5bn to the Rainy Day Fund as well as create a Brexit package worth €1.2bn with provisions for beef farmers, the fisheries industry and to help people transition to new work.

Allied with this corporation tax was maintained despite pressure from Europe but


IBEC CEO Danny McCoy said: “The context of a rapidly growing domestic economy set against the backdrop of Brexit, and international trade tensions, has made Budget 2020 one of the most difficult to formulate in some time. The Government has in our view struck the right balance by focusing available resources on those measures which can help insulate the economy from external shocks by investing in critical infrastructure, preparing for Brexit, and improving supports for SMEs.

“A further €900m in spending on public infrastructure in 2020 will see a cumulative €5bn increase in annual public capital spending over the last five years. This shows that the Government has been listening to the concerns of business when it comes to core quality of life issues which are impacting on our ability to attract and retain talent. More must be done, however, when it comes to the funding of higher education which has not seen the level of ambition needed in new core funding.

“Today’s announcement of further supports for business preparing for Brexit is a welcomed development. Ibec has set out over the past number of years the need for comprehensive and meaningful supports for the companies, workers, and communities which will be the most impacted by Brexit. We look forward to working with the Government over the coming months to make sure that these supports are designed and rolled-out to help the country and Irish business prepare for Brexit.

“A package of additional tax supports for SMEs through improvements to schemes such as the EIIS and the KEEP scheme for share options, while containing some very welcome elements, is limited in scale. On the other hand, changes to the R&D tax credit will have a more significant impact on SME take-up. Over the coming weeks many businesses will be watching closely to see if the Finance Bill delivers on today’s announcements with workable legislation.”

R&D tax credit

“The amendments to the R&D tax credit regime heralded by the Minister are a welcome step in the right direction in terms of supporting small, indigenous Irish businesses and allowing innovation to prosper within our start-up and scale-up eco-system,” said Caroline O’Driscoll, Tax Partner, Deloitte.

“The relief is an important stimulus for investment and in creating new and sustaining existing employment. As outlined in public consultations on the R&D credit, companies providing employment data in reviews estimated that their R&D workforce would be just under 50pc of today’s levels, and their overall workforce would be 37pc smaller, in the absence of this tax credit. Put simply, the credit works to create jobs.

“However, it is worth noting that recent surveys have found that the qualification criteria and requirements with respect to Revenue audits and documentation present a very real barrier to the credit for small and medium sized businesses. It would be helpful if this was addressed to help more businesses avail of the credit.”

O’Driscoll concluded: “Against the backdrop of uncertainty post Brexit, it will be vital to ensure that smaller businesses are rewarded for taking risks in developing Ireland’s knowledge economy. Today’s measures are a positive step in this regard. Ireland’s tax credit scheme must continue to develop and maintain its place within the best schemes in the world. The R&D tax credit regime along with its administration, must facilitate companies to benefit and enable them to re-invest in the R&D process to fuel future growth, innovation and prosperity.”

Carbon tax

CPA Ireland, one of the country’s leading accountancy bodies, has broadly welcomed Budget 2020 which it has said is “the SME and Entrepreneurship Budget which Ireland has required for the last number of years.” However, the body whose members support over 100,000 Irish SMEs, has said it is essential that regional businesses are not disproportionately disadvantaged by the increase in Carbon Tax.

Commenting on the budget CPA Ireland President Gearóid O’Driscoll said: “With the nightmare of a no-deal Brexit now just days away it is welcome that today’s budget is focussed on helping businesses withstand the pressures this will bring.

“The increase in carbon tax, which is intended to deliver much needed reduction in Ireland’s carbon footprint, could have a disproportionate impact on regional SMEs.” At the recent CPA Ireland Presidents Dinner O’Driscoll put forward CPA Ireland’s proposal for the development of Carbon Neutral Enterprise Hubs in our regional towns which would assist in decarbonising our economy.

“CPA Ireland strongly recommends that any income generated from the carbon tax should be ring-fenced and reinvested in environmentally friendly business initiatives to promote green construction, grow employment in rural Ireland and contribute to a reduction in commuting thereby providing a positive contribution to the reduction of carbon emissions in Ireland.”

Supporting entrepreneurship and SMEs

Speaking on measures to support SMEs “The discrimination experienced by Ireland’s entrepreneurs is one of the tax system’s enduring failures. We welcome the increase of €150 in the earned income tax credit for the self-employed. However, he said promises to eliminate this gap have consistently been broken which will be a cause of frustration for many.”

CPA Ireland welcome the increasing of the R&D tax credit and its new focussed support for the small and micro sector. The inclusion of pre-trading expenditure is a positive move and we hope this will be combined with an administrative system designed with the budgetary restrictions of small and micro companies in mind.

The commitment by the Minister to introduce supports for ‘vulnerable but viable businesses’ will offer relief to many employers affected by Brexit. At a time when small businesses will be struggling it is important that such supports are easy to understand and access and avoid burdensome bureaucracy.”

Employee share options

Changes to the Key Employee Engagement Programme (KEEP) will apply to group company structures and will allow for greater flexibility for employees to move within such structures. It will permit the use of existing rather than just new shares and the rules will be adjusted to allow for part-time and family friendly working arrangements.

“We welcome the Minister’s announcement that he is taking some action to make the KEEP scheme more attractive to employers,” said Daryl Hanberry, Tax Partner, Deloitte. “The amendment to allow for part-time and family friendly working arrangements should allow the relief to extend to part-time workers who work reduced hours on a permanent basis. It is anticipated that the expansion of the relief to group structures will allow qualifying companies to grant options over shares in the parent company which is to be welcomed.

“The question will be whether it is enough to encourage take-up of the scheme. The Minister did not make any announcements regarding some of the other conditions which have proved to be the main blockers to take up of the scheme, namely the broad definitions of companies excluded from the KEEP scheme and the limitation by reference to a percentage of remuneration. In addition, the lack of an exit mechanism for employees appears not to have been addressed.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 9 October, 2019