Supporting SMEs ‘critical’ to Ireland’s economic success

The Institute’s latest thought leadership papers outline a series of measures needed to support Ireland’s SMEs, write Cróna Clohisey and Michael Diviney.

The Institute has published the latest in its series of thought leadership papers. Supporting SMEs was informed by the views of our 33,000 members and sets out the measures that we believe are needed to achieve strategic, systemic improvements for SMEs operating across Ireland.

SMEs make up the vast majority of all businesses in Ireland, and collectively they employ close to seven out of 10 people working in the business economy.

It is clear from engagement with members that a critical marker of Ireland’s future economic success will be supporting our SME sector by reducing the cost and complexity of doing business.

SMEs have faced an unprecedented number of new legislative requirements in recent months which significantly adds to their cost and administrative burden.

In 2024 alone, the minimum wage has increased by 12 percent and additional sick leave entitlements have added one percent to payroll costs.

From 1 October, the rate of Employer, Self-Employed and Employee PRSI will increase by 0.1 percent, while pensions auto-enrolment will add a further 1.5 percent in costs during 2025.

Supporting SMEs calls on the Government to be cognisant of the challenges all of the above brings. While the measures are extremely important for employees, consideration must be given to the timing of implementing new employment law, and the impact on SMEs when all are introduced within a short timeframe.

The paper sets out a series of proposals, grouped under four headings:

• Resilience and growth;
• Government supports and funding;
• Sources of business finance; and
• Reducing the cost of business through the tax system.

Alleviating the administrative and cost burden for SMEs is at the forefront of our asks which include the following proposals:

• Minimum wage workers, working a full week, should be exempted from Employers’ PRSI.
• Tax discrimination against professional service companies must end so that they can benefit from the various investment reliefs available to comparable trading companies.
• Reducing Capital Gains Tax from 33 percent to 25 percent to stimulate business and personal transactions that will bring additional funds into the Exchequer.
• The real time reporting requirement for enhanced reporting requirements (ERR) for employers should be removed and replaced with monthly or even annual returns.

Additionally, we ask for a commitment from Government not to extend ERR for at least three years until the system is embedded and an appropriate cost-benefit analysis of the current system has been properly completed. Chartered Accountants Ireland believes that more resilient businesses will be better positioned to weather crises and uncertainty, and have confidence to invest, to scale, and to create employment. Financial stability is paramount to this.

The Institute is calling on Government to support SMEs in accessing finance, optimising governance structures, and investing in developing their workforces.

Proposed measures to ensure resilience and the continued growth of this vital sector of the economy include:

• Widening the eligibility criteria for the broad range of grants available to include more ‘traditional’ industries and the service sector.
• Ensuring more consistent availability of grants and supports nationwide. Our members tell us that services provided in one part of the country may not be available to similar businesses elsewhere; much depends on the approach and funding at a local level. With the advent of remote working, a common approach to supporting all small businesses, regardless of location, is needed.
• Promoting healthy competition in the business lending market, by enhancing the role community-based lenders and alternative lenders can play in addition to the pillar banks.

It is well documented that record corporation tax receipts will not always be with us and there is a strategic imperative to ensure long-term economic health for SMEs. This can only come from understanding the unique challenges facing them, not simply by virtue of their size, but also specific to the sector they operate in, and supports they need.

CCAB-I’s Pre-Budget 2025 submission focuses on supporting and sustaining our SME sector

Continuing the focus on the importance of the SME contribution to the Irish economy, the Institute, under the auspices of the CCAB-I, delivered its pre-Budget 2025 submission to Minister McGrath last month.

The paper highlights the constraints experienced by SMEs as a result of increasing labour costs and also states that a lack of supply of housing and childcare places, in addition to high personal tax rates, are making it increasingly difficult for people to live and work affordably in Ireland.

The submission identifies four key areas for budgetary focus:

• support SMEs by exempting minimum wage workers from employers’ PRSI and simplifying tax legislation;
• increase the number of childcare places available and offer working parents a €1,000 tax credit to return to the workforce;
• introduce a 30 percent intermediate rate of income tax to retain and attract workers and help people live affordably;
• continue to stimulate and support the completion of new houses.

The CCAB-I believes that Ireland’s tax code has become increasingly complex in recent years and is calling for simplification of the tax rules to support businesses, enable them to grow and also ensure that Ireland remains competitive on an international stage.

Childcare provision

In terms of childcare, the submission includes measures to improve the supply of childcare places for pre-school children.

To address the impact of working parents leaving the workforce following the birth of their children on the labour supply, the CCAB-I is calling for the introduction of a €1,000 tax credit for working parents to encourage them to return to the workforce.

The CCAB-I also asks that the government plans for adequate capacity in the childcare sector by analysing local needs and ensuring adequate funding for the sector.

Income tax reforms

The CCAB-I believes that introducing a third rate of income tax of 30 percent would make the system more equitable. Workers in Ireland pay income tax at a rate of 40 percent once they earn €42,000.

This entry point is below the average wage and is significantly lower than most countries across the UK and Europe, where incidentally having more than two tax rates is extremely common.

We are a mobile profession where many are in the early stages of their careers and are planning their futures. Introducing an intermediate 30 percent rate would make the system more attractive and more equitable, lessening the tax burden on workers and putting more money in their pockets.

Housing measures

The submission proposes:

• extending the Help-to-Buy Scheme by two years to 31 December 2027;
• abolishing vacant homes tax;
• increasing the rent-a-room relief from €14,000 to €20,000 and removing the cliff-edge;
• abolishing the non-resident landlord withholding tax system.

Cróna Clohisey is Acting Director of Advocacy and Voice at Chartered Accountants Ireland Michael Diviney is Head of Thought Leadership at Chartered Accountants Ireland.