With banks reluctant to lend, and budgets for the funding agencies reduced, those contemplating setting up their own business now have fewer options when seeking finance. However there are some tax based schemes which could be of help.
Employment & Investment Incentive Scheme (EII)
This replaces and extends what was previously known as the Business Expansion Scheme (BES). Under the scheme qualifying investors can get income tax relief on investments of up to €150,000 per annum in certain qualifying companies. Relief is given at up to 30%, with a further 11% allowed after three years if the company has fulfilled certain criteria in respect of employment.
There are a number of conditions which must be satisfied in respect of the investor, qualifying shares, and the trade of the company. This scheme is available to both new and existing companies, and employees and directors of the company may invest subject to certain rules.
Seed Capital Scheme (SCS)
This scheme enables an employee, or those who were previously in PAYE employment to get a refund of income tax when they investment in a new business (must be a company). The refund may be claimed from any or all of the six years prior to the year the investment is made. For example: if €10,000 is invested and the investor has paid tax at 41% in any of the last six years then they can claim a refund of up to €4,100. If they have paid tax at a rate of 20% in those years then a maximum of €2,000 can be refunded.
The relief is subject to a maximum investment of €100,000 in any year of assessment. The investment in the company may be made in two stages. The second Investment must be made within two years following the tax year in which the first investment is made.
There are a number of other conditions in respect of share ownership which must be fulfilled by the investor, and in relation to the trade which must be fulfilled by the company. A positive change was made by The Finance Act 2011, meaning that practically any trading activity (within the meaning of tax law) is now within the scope of the scheme, making it much broader than before. However, it should be noted that there are still some exclusions.
There is a deadline of December 31, 2013 for the investor to claim relief under both the EII & SCS schemes. Whilst historically these types of schemes have been extended and one would like to think they will be extended in the forthcoming budgets, there is no guarantee.
Revenue Job Assist
This gives employers a double deduction when calculating the taxable profits of a trade or profession in respect of wages paid to a long term unemployed person in the first three years of a qualifying employment. The employee is also entitled to claim additional tax benefits.
Corporation Tax Start-Up Relief
New start-up companies can get relief from corporation tax for the first three years of trading. The relief applies where the total corporation tax payable for an accounting period does not exceed €40,000 (there is marginal relief where the tax payable is between €40,000 & €60,000). The value of the relief is linked to the amount of employers PRSI paid by a company in an accounting. Note – this scheme does not apply to a trade which was previously carried on by another person or formed part of another person’s trade.
This article is not a comprehensive guide and seeks only to highlight aspects of these schemes. For more detailed information contact McLaughlin McGonigle, St Helens, St Oran’s Road, Buncrana, Co. Donegal. Tel +353 (0)74 9321420 / Fax +353 (0)74 9321421/ firstname.lastname@example.org