The Finance Bill 2019 reveals the true extent of changes to R&D tax relief and the Key Employee Engagement Programme (KEEP). Do they go far enough?

While the Budget 2020 often captures the headlines on the day, it is usually the publication of the Finance Bill 2019 almost a fortnight later that reveals the extent of what the measures really mean in terms of taxes, costs to employers and benefits for employees.

In terms of the Employment and Investment Incentive (EII) relief, Finance Bill made it clear that full income tax relief in the year of investment now available, effective from 8 October 2019.

“It is disappointing that there is no move towards providing a safe harbour in relation to share valuations”

Previously 75pc relief was available in the year of investment with the remaining 25pc relief being available in year four where certain conditions linked to employment or R&D activities of the company were met.

The annual investment limit will be increased from €150,000 to €500,000 where the investor undertakes to retain the investment for a period of 10 years and €250,000 in all other cases, effective from 1 January 2020 onwards.

“For investments made from 8 October 2019 onwards there will be no requirement to satisfy any conditions relating to future employment/R&D spend in order to qualify for the relief, which should make it more accessible,” said Alison McHugh, director, Tax, Deloitte Ireland.

“In addition, the full relief will be available in the year of investment provided the investor has sufficient income. For individuals, the enhancement of this relief is welcome especially given there are very few total income reliefs currently available. This will also act as an incentive for investors to provide alternate funding to businesses by encouraging additional investment.”

KEEP moving on share options

Among the measures to be clarified were the Key Employee Engagement Programme (KEEP) for providing staff with shares and changes to the Employment and Investment Incentive (EII).

“The KEEP scheme was introduced to assist small growing companies recruit and retain employees through the provision of share options,” said Daryl Hanberry, partner, Tax, Deloitte.

“There has been a relatively low uptake due to a number of administrative barriers. Therefore it is welcomed that the Minister has taken some action to make the KEEP scheme more attractive to employers by amending the restrictions in relation to holding companies, the use of existing rather than just new shares and reducing the hours required to be worked by an employee.  This latter change will allow the relief to extend to part-time workers who work reduced hours on a permanent basis. The expansion of the definitions of holding companies will allow qualifying companies to grant options over shares in the parent company, albeit there is still some uncertainty around what activities the holding company can carry on.

“That said we believe that further action could have been taken. It is disappointing that there is no move towards providing a safe harbour in relation to share valuations. We recognise that Revenue may not wish to formally approve valuations on an ongoing basis for KEEP. However, as an alternative, Revenue could develop and issue guidance on appropriate valuation methodologies to support SME companies in adopting KEEP.  In the absence of such guidance companies may see the cost of valuations, which are required at the outset and on the grant of new tranches of options, as too high to allow them to utilise KEEP.”

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

Published: 18 October, 2019

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