Enhancements to the research and development (R&D) tax credit, and start-up relief for companies were the main features. A new corporation tax relief is to be introduced for expenses incurred on an initial stock market listing. And, as expected, the new participation exemption for foreign sourced dividends will commence from 1 January 2025.   R&D tax credit  The R&D tax credit remains an important feature of the corporation tax (CT) system and provides a 30 percent tax credit for qualifying R&D expenditure. The regime’s primary policy objective is to increase business R&D in Ireland, as R&D contributes to higher innovation and productivity. More broadly, the tax credit forms part of Ireland’s CT offering and is aimed at attracting FDI and building an innovation-driven domestic enterprise sector. The credit enables Ireland to remain competitive in attracting quality employment and investment in R&D.  Given its importance, it is proposed to increase the first-year payment threshold from €50,000 to €75,000. This threshold is the amount up to which a claim can be paid in full in the first year, rather than being paid in instalments over three years. The increase should therefore provide valuable cash-flow support to companies undertaking smaller R&D projects or engaging with the credit for the first time.   It is estimated, based on 2022 claims (the latest data available), that increasing the payment threshold to €75,000 will increase, to circa 44 percent, the proportion of claimant companies qualifying for payment of the credit in full in the first year.  Section 486C start up relief  Section 486C start up relief currently provides a CT relief for new small companies in the first five years of trading with an annual CT liability of less than €40,000. Marginal relief is available to Companies with a CT liability of between €40,000 and €60,000 to ensure companies with a liability just over €40,000 do not lose the full value of the relief. Section 486C allows relief of up to €40,000 per year against CT liabilities, which may be carried forward where not fully used in the five years. The relief is currently calculated by reference to employer PRSI paid of up to €5,000 per employee. This does not encompass PRSI paid by owner-directors.   This measure proposes to extend the qualifying criteria to allow up to €1,000 of Class S PRSI per individual to count toward this cap and aims to provide much needed support for small, owner-managed start-up companies.  Participation exemption  As noted earlier, the participation exemption for foreign dividends which will provide for a significant simplification of double tax relief for Irish companies with foreign subsidiaries will commence from 1 January 2025 as expected. Further details of this measure are set out in in Chapter 8 of the Budget 2025 Tax Policy changes publication.   Relief for listing expenses  A new measure is to be introduced which will provide relief for expenses incurred on an initial stock market listing. This measure aims to support businesses in the scale-up phase of their growth and development and should also encourage more stock exchange listings, whilst also providing wider positive benefits for the Irish economy.   The deduction will be available for expenses incurred wholly and exclusively on a first listing (IPO) on a recognised stock exchange in Ireland or the EU/EEA area. The relief will be available to investment companies as an expense of management, or to trading companies as a trading deduction.  An overall cap of €1 million of expenses per listing will apply, with the relief being claimable by a company in the year of first successful listing. Expenses wholly and exclusively incurred for the purposes of the listing, both in the year of listing and the previous three years, will be allowable, subject to the overall €1 million cap. The measure will apply for successful listings completed on or after 1 January 2025.   

To further combat the ongoing pressures on household budgets, the Minister for Finance announced the expected €2,000 increase in the standard rate cut off band for all taxpayers, in addition to a range of increases in various tax credits. The middle rate of USC will be reduced from 4 percent to 3 percent. The now usual change in the USC bands to ensure that the increased minimum wage remains outside the middle rate of the USC also featured. These changes will take effect from 1 January 2025.   Changes to the small benefit exemption, an issue on which the Institute has extensively lobbied on, also featured with the value limit to increase to €1,500 and the number of benefits that an employer can give to increase from two to five per year.   Rate bands and tax credits changes from 1 January 2025  The income tax standard rate cut off bands will increase as follows:   Single, widowed or surviving civil partner from €42,000 to €44,000,  Single, widowed or surviving civil partners, qualifying for the Single Person Child Carer Credit from €46,000 to €48,000,  Married couples or civil partners (one income) from €51,000 to €53,000, and  Married couples or civil partners (two incomes) from €51,000 to €53,000 (with a maximum increase of €35,000).  The personal tax credit, employee tax credit, and earned income tax credit will all increase from €1,875 to €2,000.   The home carer tax credit will increase from €1,800 to €1,950  The single person child carer credit will increase from €1,750 to €1,900.   The incapacitated child tax credit will increase by €300 from €3,500 to €3,800   The blind persons tax credit will increase by €300 from €1,650 to €1,950.   The dependant relative tax credit is to increase €60 from €245 to €305.  The estimated total cost of these measures is €1.12 billion in the first year and €1.29 billion on a full year basis.  USC  The 4 percent rate of USC will reduce to 3 percent. To ensure that the salary of a full-time worker on the minimum wage will remain outside the new 3 percent rate of USC when the minimum wage increases from €12.70 to €13.50 from 1 January 2025, the ceiling of the 2 percent USC rate band will increase by €1,622 from €25,760 to €27,382.    As a result, the USC rates and bands from 1 January 2025 will be:  €0 – €12,012 - 0.5% (no change);  €12,013 – €27,382 - 2%;    €27,383 – €70,044 – 3%    €70,045+ - 8% (no change); and  Self-employed income over €100,000 - 3% surcharge (no change).  Incomes of less than €13,000 remain exempt from USC.  According to the Minister for Finance’s speech, these changes means that a full-time worker on the minimum wage will see an increase in their net take home pay of approximately €1,424 on an annual basis and a single person earning €20,000 or less in 2025 will now be outside of the income tax net.  The estimated cost of the changes in USC is €470 million in 2025 and €540 million per annum thereafter.   Sea-going naval personnel tax credit  The sea-going naval personnel tax credit will not end on 31 December 2024 and has been extended for a further five years to 31 December 2029. This tax credit is €1,500 per annum for permanent members of the Irish Naval Service who have spent at least 80 days at sea in the previous year performing the duties of his/her employment. The cost of retaining this credit is estimated to be €500,000 per annum.  Small benefit exemption  The limit of the “Small Benefit Exemption” will increase to €1,500 and the number of benefits that an employer can give will also increase from two to five per year so that the cumulative total of the first five benefits in a year shall not exceed €1,500. This is an issue that the Institute has lobbied upon extensively on behalf of members. No date was given for when these increases will take effect.  Pensions auto enrolment  Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE). It is expected that AE will be introduced in September 2025. The Institute has long supported the introduction of AE but has asked requested that it be introduced at an appropriate time, being mindful of the cost pressures SMEs in particular are under.    According to the Budget publications, the tax treatment “aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions.”   Employer contributions will be tax relieved, the growth in the AE funds will be exempt from tax and the AE funds will be taxed on draw down, other than the 25 percent tax free lump sum.   The lump sum will be able to be taken tax free up to €200,000, will be taxed at 20 percent between €200,000 and €500,000 and taxed at 40 percent above €500,000.   As the State will be making a direct contribution for employees within the AE scheme, no tax relief will be provided for employee contributions to AE.  Vehicle benefits in kind  The temporary universal relief of €10,000 applied to the Original Market Value of a vehicle (including vans) for vehicles in Category A-D and the amendment to the lower limit of the highest mileage band is being extended to 31 December 2025. 

Reacting to today’s Budget speeches, Chartered Accountants Ireland has noted that while generous steps have been outlined to support individual taxpayers, the package of supports for business falls short of what is needed to materially reduce the cost burdens facing Ireland’s SMEs. Chartered Accountants Ireland, the largest professional body on the island of Ireland, representing over 38,400 members highlighted the persistent pressure that businesses, in particular SMEs are experiencing, despite supports already committed to by government during 2024. Commenting, Director of Public Affairs, Cróna Clohisey said “While today’s budget announcement featured several positive changes to the business tax landscape including an expansion of the R&D tax credit and extensions to certain investor reliefs, measures of this nature, although welcome, will arguably do little to mitigate the everyday overheads facing many small businesses. “With the higher rate of employers’ PRSI rising to 11.15% with effect from today, alongside a further uptick in labour costs brought about by the rise in the minimum wage and the introduction of pensions auto-enrolment next year, many small businesses may feel that Budget 2025 did little to reduce their overall labour costs which is a real missed opportunity.” The Institute welcomed the Government’s commitment to invest €3 billion to support the development and expansion of water, electricity, and housing infrastructure. Clohisey continued “Now is the time to accelerate investment in the State’s infrastructure if we are to remain attractive as an FDI destination, and competitive in the global race for inward investment. It is vital however that the Government takes meaningful steps to ensure that infrastructural projects of this scale are delivered on time, on budget, and achieve the value for money that taxpayers expect. “On childcare, today’s announcement of an additional €1.37 billion in funding for the sector is a positive development in what is a key tenet of the State’s essential economic infrastructure. Today’s announcement will hopefully go some way towards improving capacity in the sector making it easier for working parents to secure a childcare place for their child”. ENDS

Budget 2025 needs to tackle rising business costs, tax complexity and housing shortages to enhance Ireland’s global competitiveness and support domestic and foreign enterprises, writes Tom Woods On 1 October, Budget 2025 should prioritise addressing key competitive challenges in the Irish economy, such as attracting, supporting and scaling Irish and foreign businesses, as well as tackling rising employment costs, international talent competition, and affordable housing availability. Tax simplification Ireland is facing a rapidly changing global tax environment, and the outcome of the US elections could significantly impact this environment and Ireland's attractiveness as an investment location. US tax measures designed to lower the US corporate tax rate to one more comparable with OECD peers and to protect the US tax base are scheduled to expire at the end of 2025. Despite this uncertainty, Ireland has a unique chance to present itself as a stable and secure destination for FDI. It is vital the opportunity is taken in Budget 2025 to introduce measures that will strengthen Ireland's competitive edge and attractiveness for inward investment. Ireland needs a broad and flexible participation regime that will support it as an international holding company location. We have called for introducing a participation exemption for foreign dividends to complement the participation exemption in place for capital gains. A branch exemption should also be introduced. Simplification of the tax code needs to be a priority in Budget 2025 to support enterprise and entrepreneurship. According to the KPMG Enterprise Barometer 2024, six in ten domestic businesses and entrepreneurs are concerned about the administrative complexity associated with the Irish tax system, particularly for smaller enterprises and entrepreneurs. Our pre-budget submission calls for the establishment of an Office for Tax Simplification to review the tax code, remove duplication, and simplify the system. By doing so, we can drive reform of overly complex tax rules that are adding to the cost of doing business and compromising competitiveness. This is particularly important now that the 12.5 percent corporation tax rate is less of a competitive advantage. SME investment SMEs employ more than 1.2 million people and are critical to our economic success, so they need access to capital and talent to develop and grow their businesses. Enhancements to the Key Employee Engagement Programme (KEEP) and the Special Assignee Relief Programme (SARP), as well as introducing a super deduction for payroll costs of highly skilled technology workers would help level the playing field for SMEs competing with multinational corporations in a tight labour market. Budget 2025 could also incentivise investment in SMEs by simplifying the Employment Investment Incentive Scheme (EIIS) and enhancing Capital Gains Tax (CGT) Entrepreneur's Relief. It is also critical to reverse the changes made to the CGT Retirement Relief in the last Finance Act. The availability of CGT retirement relief is vital to the development of multi-generational family-owned businesses and farms. These businesses and farms are the bedrock of the Irish economy, employing millions. Last year's changes will operate as a barrier to the transfer of Irish businesses and farms to the next generation. Employment cost reduction Ireland's high cost of employment has become a real concern for domestic businesses and foreign investors. Budget 2025 should introduce measures to reduce the cost of employment. Ireland needs a personal tax regime that attracts and retains skilled individuals. This is important for Irish and foreign-owned companies assessing Ireland as an investment location. The entry point to Ireland's marginal income tax rate is uncompetitive compared to many other jurisdictions, making it difficult to attract talent and highly skilled workers. We recommend raising the point at which the marginal rate applies to €50,000. We also recommend the introduction of an earnings cap of €75,000 on Employee PRSI and €100,000 on Employer PRSI, similar to social security caps in other countries, increasing workers' take-home pay, helping employers manage employment costs and supporting businesses growing and developing talent. Housing crisis The housing crisis is adversely impacting Ireland's attractiveness for investment. According to new data from the Central Statistics Office, 69,000 people emigrated from the Republic of Ireland in the 12 months to April 2024, the highest level of emigration since 2015. There were also significant inflows, but this is a missed opportunity to keep talented people in the Irish labour market. Several budgetary measures could be introduced to increase the housing supply, including incentivising employers to build and provide residential accommodation to employees with a corresponding benefit-in-kind (BIK) exemption for employees earning less than €50,000. Reintroducing a targeted and controlled form of Section 23 relief could also encourage the conversion of properties above retail units to residential use and encourage individuals to finance the development of new residential units for letting. Green technology Our ambitious climate goals will undoubtedly present challenges and opportunities for individuals, communities, and businesses. Tax policy could be used as an effective tool to encourage innovation in green technologies to help us meet these targets. The Government has several challenges to address, but strong exchequer returns should put the Government in a good position to deliver on a budgetary package of €1.8 billion in additional spending and €1.4 billion in tax measures as set out in the Summer Economic Statement.  Tom Woods is head of tax at KPMG in Ireland

In every issue of The Bottom Line, we ask students for their thoughts on a particular topic. This month, we want to know: What do you hope to see in Budget 2025? Daragh Connolly  Gilroy Gannon I would like to see the VAT rate reduced for the hospitality sector from 13.5 percent to nine percent.  The expiration of the temporary nine percent VAT rate in September last year, which has coincided with high inflation rates, has forced businesses to increase prices considerably which, in turn, has priced many customers out of the market.  According to the Restaurant Association of Ireland (RAI), 577 restaurants across the country closed their doors between September 2023 and July 2024. The reduction in the VAT rate should help alleviate some of the pressure that many restaurants in Ireland are facing, as well as broadening the industry’s customer base.  Furthermore, the current cost of eating out is not attractive to tourists visiting Ireland and may be having a negative impact on Ireland's tourism sector as a whole.  James Smyth  KPMG The cost-of-living crisis continues to be a key issue across the country. With housing prices and rental demand at record highs, it’s crucial the budget addresses these issues sustainably.  One measure I would like to see is the reduction of VAT on construction materials to boost housing supply nationwide.  Additionally, I would like to see an increased drive for investment in cross-border and cross-country infrastructure to support those commuting from rural areas and the North, creating cost-effective and sustainable travel. As inflation begins to slow, it’s essential for the budget to include forward-looking and sustainable measures to safeguard against future challenges, like retaining reduced rates of VAT for retail and other businesses in order to bolster the SME market. This approach will address immediate concerns and ensure long-term stability and growth.  The budget’s focus on these areas could provide much-needed relief and hope for a more secure future. Collette O’Shea  Mazars Last year, the Government announced the establishment of a Tax Administration Liaison Committee subgroup dedicated to identifying opportunities to simplify and modernise the administration of business supports. I want to see the impact of this tax simplification in Budget 2025.  Tax legislation with convoluted rules and requirements hinder businesses ability to stay tax compliant or avail of tax reliefs. All businesses in Ireland, especially our domestic SMEs, should know exactly what reliefs they are entitled to claim and  how they can claim them.  Furthermore, it needs to be unambiguous what taxes businesses have to pay and  when to pay them. Simplification of tax legislation would lead to increased compliance and better tax revenue collection as businesses would be better placed to understand their tax reporting and payment obligations. Removing the needless complexities and ambiguities in Irish tax legislation would reduce the level of incorrect claims and errors that arise from complicated tax legislation.

Last week, the Institute, under the auspices of the CCAB-I, wrote a letter to the Minister for Finance setting out a range of proposals to address various legacy issues within the Employment Investment Incentive Scheme (EIIS) which have been carried forward from the days of the Business Expansion Scheme (BES). The issues highlighted in the letter are not matters arising from differences in the understanding of tax policy. Rather, the issues identified are areas where the legislation could be updated without impacting the integrity of the relief and without conflicting with the General Block Exemption Regulation (GBER). The proposals will, in our view, provide clarity to taxpayers and advisors, and also simplify the legislation by removing obsolete provisions.  

Last week, the Institute’s Director of Advocacy and Voice, Cróna Clohisey wrote to the Minister for Finance with a proposal to reduce the lower rate of Employers’ PRSI (ER PRSI) for the purposes of assisting businesses manage the cost of introducing pensions’ auto-enrolment. To counteract the cost of auto-enrolment for employers, the letter notes that consideration should be given to reducing the lower rate of Employers’ PRSI (based on the rate that will apply from 1 October 2024) by 1.5%; from 8.9% to 7.4%. This change would impact the group of workers on minimum wage, many of whom depending on individual age and earnings will be required to enrol.

Last week, a delegation from the Institute, under the auspices of the CCAB-I, met the Minister for Finance, Jack Chambers TD to discuss this year’s Pre-Budget 2025 submission. The Minister was joined by several key senior officials from his department who facilitated an engaging and thorough discussion on a number of our proposals. We raised our concerns over the increased cost of doing business for SMEs in particular, the potential to reduce Employers' PRSI and reducing the headline rate of CGT from 33 percent to 25 percent. We also raised concerns about capacity and adequate childcare, and how the lack of affordable childcare is impacting workers. In addition, we reiterated many of our recommendations for enhancing share-based remuneration, particularly for SMEs, including recommending a deferral of the upfront tax charge on unapproved share options and a safe harbour for valuations for private companies instituting share schemes. We discussed the impact of the new Enhanced Reporting Requirements on businesses and the ongoing question about the need for businesses to report in real-time or, or before in-scope payments are made to employees. The requirement to file on a real-time basis does not seem to add any integrity to the information reported to Revenue but has caused significant problems for affected businesses and workers. We also suggested that two-gift limit applying to the small benefit exemption should be removed with the only limit being by reference to the total value of non-cash benefits made in a year, i.e. a taxpayer should be entitled to receive any number of non-cash benefits up to €1,000 as long as those benefits are not part of a salary sacrifice arrangement. The Institute is grateful to Minister Chambers for taking time to meet with us and consider our proposals. We wish the Minister every success in his new role and look forward to continued engagement with him and his office.

Last week, the Government published its Summer Economic Statement 2024. The document sets out the Government’s medium-term budgetary strategy and outlines the fiscal parameters within which discussions will take place ahead of Budget 2025.  Against a backdrop of a larger population and higher price levels, Government is adjusting its fiscal parameters for Budget 2025. To accommodate higher capital expenditure and to provide additional public services, core spending will now increase by 6.9 percent next year.   Budget 2025 will provide an overall package of €8.3 billion, of which €6.9 billion represents additional public spending. Taxation measures of €1.4 billion are intended to help shield workers from higher taxation arising from wage inflation.   The Budget will be presented to Dáil Éireann on 1 October 2024. Commenting on the document, the Minister for Finance, Jack Chambers TD, said:  “The Government’s forceful and timely policy responses have helped ensure the continued resilience of the economy in the face of a succession of major external shocks. Encouragingly, inflation is now back at rates consistent with price stability and the economy continues to operate at full employment. However, while the economy is in reasonably good shape at present the external outlook remains highly uncertain with elevated geopolitical tensions.  In terms of the public finances, at the headline level, our public finances are performing well and budgetary surpluses are in prospect over the coming years. However, the headline fiscal position masks the underlying vulnerabilities present in our public finances, the most significant of which is the exposure to volatile corporation tax receipts.  The two new investment vehicles – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund – signed into law last month will help us to address some of the risks around windfall tax revenues, but this must be coupled with a balanced approach to budgetary policy.  There remains the continuing need to improve public services and infrastructure, particularly in the context of a growing population and economy. The Government has adapted its fiscal strategy to take account of this, to support the continued delivery of better healthcare services as well as accommodate higher capital spending. On this basis, an overall package of €8.3 billion is being made available, consistent with expenditure growth of 6.9 per cent.  It is important to stress that in the provision of additional public services, additional financial resources must go hand-in-hand with mechanisms that improve public service delivery. Value-for-money considerations must be to the fore and an increased focus on efficiency and productivity is needed.  On the taxation side, a package of €1.4 billion has been allocated which will ensure that Government has the scope to once again adjust tax credits and bands to ensure workers do not find themselves paying a higher rate of tax because of higher wages.  I strongly believe that the strategy that we have announced represents an approach that takes into account the economic realities of today while still ensuring the sustainability of the public finances into the future. There are many challenges on the horizon but there are also opportunities. It is crucial that we use the current window of opportunity presented by the relative health of our economy and public finances to seize them.”