Finance Bill 2023 and entrepreneurs, so much done, more to do?

31 October 2023

As I always say the devil is in the details and on 19 October nearly 270 pages of detail came our way in the Finance Bill. However, almost half of it dealt with the necessary detail behind the new 15% rate of corporation tax. The Bill had significant changes for Entrepreneurs and their businesses. I was chatting with tax partner Carmel Marnane during the week on these issues and below are some of our thoughts.

In my previous column I mentioned the reduced Capital Gains Tax (CGT) rate for disposals of certain investments made by “Angel Investors” where Ts & Cs are met. The proposed relief envisages reduced tax rates for such disposals by Angel Investors – 16% for qualifying investments in companies and 18% if through partnerships. However, the detail will be revealed at Committee Stage. So we have to wait to see what constitutes an “innovative start-up small and medium enterprise” for the purposes of the relief and all the practical stuff as the rubber of the relief hits the road.

Also, you’ll recall I mentioned in that column that the 5% ownership requirement was causing some concern for certain organisations and hopefully we might see this addressed at the Committee stage reveal. This will take effect from 2024 but the first year in which this relief may be availed of will be 2027 because the investment must be held for a period of three years prior to its disposal.

For me the key here is that cash gets into the entrepreneurial company to help it get to where it wants to be and if it becomes the next Goliath, then great. Therefore, I would urge that significant consideration be given to this ownership area. The relief will apply to gains up to twice the value of the initial investment.

Retirement relief is a form of CGT relief arising on the disposal of certain business assets and shares in certain companies. Before continuing, you don’t have to retire! For an individual aged 55 years or older who satisfies the Ts & Cs then there is no monetary limit on the amount of consideration that can qualify for the relief in relation to disposals made prior to 1 January 2014. For disposals made since 1 January 2014, where the individual making the disposal is 66 years or older and the market value of the qualifying assets is over €3 million, relief is limited to an amount of €3 million. This age limit will now be increased from 66 years old to 70 years old with effect from 2025.

However, the proposed cap on the availability of retirement relief can make the transfer of shares in a family-owned business difficult during the lifetime of an entrepreneur. In many cases, this may delay the transfer of shares or business/farming assets to pass as an inheritance rather than during the lifetime of the entrepreneur.

The Minister said that he had asked his officials to examine opportunities to refocus the Revised Entrepreneur Relief with a view to further improving the incentives for founders and entrepreneurs in the innovative start-up phase. That provides for a reduced CGT rate in respect of gains on disposal of shares in companies where certain criteria are met. Our pre-Budget submission also suggested the introduction of a lower rate of tax of 20% that could be provided to entrepreneurs subject to an annual dividend cap of €100,000.

Amendments to the R&D tax credit were included in the Bill. The amount of the credit available has been increased from 25% of qualifying expenditure to 30% of qualifying expenditure. The amount of tax repayable in the first year has been increased from €25,000 to €50,000. However, new claimants or companies that have not made an R&D tax credit claim over the past three immediately preceding accounting periods, are now required to notify Revenue of their intention to claim in advance of submitting an R&D tax credit claim.

Staff recruitment and retention continues to be a concern for indigenous businesses. The Key Employee Engagement Programme (“KEEP”) which was extended in the previous budget will be amended to incorporate various enhancements which were subject to EU State Aid approval. These enhancements will now be introduced and in particular the lifetime company threshold of €3m will be raised to €6m. The amendments to the KEEP Scheme should assist in the retention of key talent.

The changes to R&D and KEEP registration thresholds will take effect from 2024. The increase in the age limit for Retirement Relief will apply with effect from 2025 onwards. The reduced CGT rate for Angel Investors will take effect from 2024 but the first year in which this relief may be availed of will be 2027 because the investment must be held for a period of three years prior to its disposal.

Finally, the Bill proposes a number of changes to the Employment and Investment Incentive (“EII”) Scheme. These changes are broadly in response to the revision of the EU General Block Exemption Regulation (GBER). An increase in the lifetime limit in the amount of risk finance investment that can be raised to €16.5 million is also introduced, together with an increase in certain limits on which an investor can get relief on an individual basis to €500,000. The period of investment has also been standardised to 4 years. A further review of EIIS will take place early next year with a view to simplifying it further.

As I always say that when it comes to investment simplicity eats complexity for breakfast so it’s incumbent on us to improve the whole area of investment for entrepreneurs to assist homegrown activity.

The Finance Bill ain’t over until the President signs it.

Please note this article first featured in the Business Post on Sunday, 29 October 2023 and was re-published kindly with their permission on our website.