Call for Ireland to use creative tax measures to boost SMEs

The Irish Government has been called on to introduce tax incentives to help restart the SME sector.

PwC in conjunction with the DCU National Centre for Family Business and the Family Business Network has issued a pre-Budget submission for the SME sector setting out key tax initiatives to support “home-grown” Irish firms.

PwC pointed out that with close to 900,000 people on Government income supports, the sharp impact of Covid-19 on jobs has been most severely felt in the Irish SME sector.

“The situation is so serious, and the threats so large, that some very decisive measures need to be taken to help Ireland’s SME sector”

The proposals, which have already been submitted to Government ahead of the expected July Stimulus, set out new and creative measures targeting four main policy objectives where tax policy can make the most impact.

These are: to stimulate demand and protect jobs, to maintain cash circulation within the domestic economy, to help achieve the current national health priorities such as remote working and to support businesses in adapting to the new digital economy which has emerged with the advent of the crisis.

“We welcome the new Government’s focus on supporting and prioritising the Irish SME sector,” said Ronan Furlong, Tax partner with PwC. “We would urge it to continue to show imagination and consider a range of practical and achievable measures that can help to stimulate demand, protect employment and restart jobs led growth in our domestic economy.

“Although Irish businesses have shown themselves to be incredibly resilient and adaptable so far, they will need more support to survive the next phase of the crises. Our economy needs jobs and growth and the suite of actionable tax policy measures we are proposing are aimed at stimulating demand, helping companies adapt to the digital economy and incentivising Irish companies and their employees to support our National Health priorities.” 

Cash supports for SMEs

In terms of cash supports, it has been suggested that a “borrow back tax paid” scheme be introduced where companies can borrow up to 25pc of tax paid in 2019, encouraging lending from the private sector direct to SME firms by providing tax relief on loans to SMEs and being more creative about what companies can do with trading losses. The latter suggestion involves permitting the carry back of trading losses for a period of three years.

“The loss of hundreds of jobs in the SME sector requires creative and heretofore unimagined responses to help restore and maintain this vital sector of the Irish economy,” said Colm O’Callaghan, tax partner at PwC’s Entrepreneurial & Private Business Practice.

“While the recent announcement of forbearance measures related to the payment of taxes have been of great assistance in preserving cash, it is cash injections that so many SMEs currently need. We therefore recommend the introduction of a “borrow back tax paid” scheme, as has been successful in other countries like Denmark.”

Retaining and creating jobs

To stimulate demand in key sectors of the economy to ensure job retention and creation, the proposals include reducing the current 9pc rate of VAT to 5pc, especially for hospitality and tourism.

In order to support Irish hospitality it has been suggested that there be a tax dedication for Client Entertainment Expenditure by SME.

The pre-Budget submission also calls for the reduction of VRT by 20pc in the motor trade and the reintroduction of the Home Renovation Incentive for energy-efficient improvements.

A reduction in employee PRSI of 0.5pc has been called for as well as a temporary increase in the personal tax credit by €1,000 for employees of businesses transitioning from the Wage Subsidy Scheme or Pandemic Unemployment Payment.

“The situation is so serious, and the threats so large, that some very decisive measures need to be taken to help Ireland’s SME sector,” said Nicola Quinn, Tax partner for PwC in Cork.

“We have identified a suite of measures, including for sectors badly hit such as hospitality, tourism, retail and motor, along with various accelerated tax deductions aimed at preserving cash, encouraging investment and injecting demand which should ultimately save and create jobs.”

Remote working and the digital economy

The proposed measures include a tax credit of €250 for individuals working at home at least three days a week to facilitate remote working and take pressure of public transport, enhanced allowances on home offices such as the purchase of IT equipment and capital allowances for Covid-19 protective equipment and fit-out costs.

The digital economy and the rise of online shopping are also factors to be considered and the proposals include the introduction of a double deduction for costs incurred developing a functioning online sales platform and a 50pc credit for the cost of training and upskilling staff.

Written by John Kennedy (

Published: 7 July, 2020