Budget 2022: Impact for SMEs and family firms

Opportunities to support Irish SMEs and family businesses were missed in Budget 2022, says Robert Gubbins from PwC.

Minister for Finance, Paschal Donohoe today (12 October) presented a budget that we hoped would see targeted supports for Irish SMEs and family businesses, to enable investment and to set businesses in this important sector on the path to recovery. 

Budget 2022 contained a number of tax measures which should be of benefit to Irish SMEs and their owners.

“While certain measures are welcome and will serve to continue to help SME businesses as they emerge from the pandemic, more innovative measures were required in areas of retaining key talent and encouraging investment in SMEs as well as in tackling climate change”

However, there are also areas where opportunities have been missed. Irish SMEs and family businesses have the ability to drive a jobs led recovery and more could have been done to support this.

Employment maintenance

The onset of the pandemic has changed the way we work, and this has had a profound impact on the labour market. Irish private businesses are faced with challenges of restoring their workforce as we emerge from the pandemic.

Therefore, the extension of the Employment Wage Subsidy Scheme (EWSS), albeit on a graduated basis, is a welcome measure, as an abrupt end to the scheme would likely have seen many businesses plunged into financial difficulty and the extension of the scheme until 30 April 2022 gives businesses time to get back on their feet. However, the scheme will close to new employers from 1 January 2022.

The ‘Key Employee Engagement Programme’ (KEEP) was introduced in Budget 2018 with the aim of supporting Irish SMEs to attract and retain staff. However, the uptake of the incentive was far below expectations. Therefore, it is disappointing that no announcements were made on any measures to enhance the scheme, as now more than ever there is an urgent need for many SMEs to attract and retain key talent. 

Investment

Budget 2022 provided the government with the opportunity to introduce targeted measures aimed at stimulating growth and investment. Therefore, it is disappointing that no increase was announced to either the VAT registration or the cash receipts basis of accounting for VAT thresholds, as these measures would have been a cash flow benefit to a number of Irish SMEs. 

The Employment Investment Incentive (“EII”) scheme, while generally sound in terms of its overall design and intent, is outdated in a number of important respects. We are therefore encouraged that in Budget 2022, Minister Donohue has taken the opportunity to amend and enhance the EII legislation.

These positive changes should open up the scheme to a wider range of investment funds which should help unlock savings and will help to foster an equity portfolio culture in Ireland. The scheme will also be extended for a further three years.

Succession

Budget 2022 provided the opportunity to introduce measures which would facilitate the orderly transition of ownership of Irish SMEs to the next generation and to ensure that the existing measures are fit for purpose.

Finance Act 2012 introduced a €3 million cap on the value which can qualify for CGT Retirement Relief on the transfer of shares within families for those aged 66 years of age. This was introduced to encourage the earlier transfer of shares in family businesses.

However, the cap is an arbitrary figure and is quite punitive for somebody who is over the age of 66 but still actively involved in the business. Therefore, we are disappointed that the Minister has not taken the opportunity to remove the cap or consider a reduction in rates even for a temporary period to allow for a further review.

Climate change

Budget 2022 has introduced certain “green” tax measures which allows Irish SMEs and family businesses to avail of a number of measures which can both help influence the decarbonisation journey and be of benefit to the businesses.

For example, the extension of the Accelerated Capital Allowance scheme for certain energy efficient equipment. However, we would like to have seen the introduction of a ‘super deduction’ for expenditure on plant and machinery and buildings or factories that receive a recognised accreditation for overall energy performance.

While certain measures are welcome and will serve to continue to help SME businesses as they emerge from the pandemic, more innovative measures were required in areas of retaining key talent and encouraging investment in SMEs as well as in tackling climate change. Maybe next year, we can but hope!

Robert Gubbins
Robert Gubbins is Tax Director in PwC’s Entrepreneurial & Private Business Practice.

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