Tax Reliefs for Small Businesses
Throughout the election campaign the various parties made many promises to improve the lot of small businesses. These included the abolishment of upward only rent reviews, reductions in red tape, lowering of rates and tax incentives for companies who are out there hiring. Only time will tell how many of these much needed improvements come to fruition. This month we’re looking at the existing incentive schemes in place to assist small businesses.
Employer’s Job (PRSI) Incentive scheme
This scheme was introduced in 2010 but has been extended to 31st December 2011. The idea is simple- the government are trying to incentivise businesses to hire staff by exempting them from employer’s PRSI on the employee’s wages for the first 12 months. For an employee on €30,000 per year this would be a cash saving of €3,225 for you the employer. For larger companies a limit of 5% of your staff can be hired under this scheme. However there is a concession available for small businesses that allows them to take on at least 5 employees and avail of the saving.
In order to qualify for the exemption the job must:
- Be a new and additional job (can’t be replacing someone else)
- Be for at least 30 hours per week
- Last for at least six months
In addition, your prospective employee must qualify for the scheme. A qualifying employee is a person who is in receipt of one of the following social welfare payments for a continuous period of at least six months:
- Jobseeker’s Benefit
- Jobseeker’s Allowance
- One-Parent Family Payment
- Disability Allowance
If an individual was on a Work Placement Programme (WPP) with FAS for at least three months they would also be a qualifying employee.
You can apply for the scheme by sending an application form (PRSI 20) to the Department of Social Protection. A tax clearance certificate must also be submitted with the application form.
Until approval is received from the Department of Social Protection employer’s PRSI should be paid as normal on the employee’s wages. Importantly, if the jobs ceases within six months the amount of employer’s PRSI exempted will become payable by the employer.
Corporation tax relief for small businesses
Any company which commenced trading on or after the 1st January 2009 can now avail of an exemption from corporation tax. The exemption will stand for your first three years of trading. The main conditions required to qualify for exemption are:
- Must be a trading company
- Must not have started trading before 1st January 2009
- Must be a “new business” – i.e. transfer of existing business would not qualify
How much of an exemption can you claim? The first step is to work out your corporation tax liability.
If this figure is less than €40,000 then you qualify for a full exemption and no corporation tax will be due. There is however a caveat- from 2011 onwards the amount of your exemption cannot be higher than the employer PRSI payments you have made. So for example if you owe €40,000 in corporation tax but have only paid €30,000 in employer’s PRSI your relief will be capped at €30,000 and you will owe corporation tax of €10,000.
But what if you have availed of the Employer’s Job (PRSI) Incentive scheme and have therefore not paid as much PRSI as you would have ordinarily? Fear not- you will receive a credit for employer’s PRSI equal to the amount of PRSI you would have paid.
Accelerated Capital Allowances on Energy Efficient Equipment
This relief has been around since 2008 but is very important for business owners renovating a building. Previously, relief for expenditure on capital items (such as air conditioners, heating systems etc.) was given over 8 years but this has now changed. Under the accelerated capital allowance scheme the full cost is allowed as a tax deduction in the year of expenditure provided the equipment is energy efficient.
This is a positive step as it provides significant cashflow savings for small businesses. A full list of qualifying equipment can be found on the Sustainable Energy Authority Ireland website’s - www.seai.ie. This list is updated as new products become available.
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