486C Relief from tax for certain start-up companies

Summary

This section, as introduced by Finance (No. 2) Act 2008, provides relief from corporation tax for new start-up companies for the first five years of operation where the company commences to carry on a qualifying trade on or after 1 January 2018 or the first three years of operation where the qualifying trade commenced before 1 January 2018. Relief is granted by reducing the corporation tax on the profits of the new trade and gains on the disposal of any assets used for the purpose of the new trade.

Prior to Finance Act 2011, full relief was available where the corporation tax otherwise payable by the company was €40,000 or less. Marginal relief applied where the corporation tax liability was between €40,000 and €60,000.

The relief applies to new ventures only and relief cannot be claimed in respect of a trade or part of a trade that was previously carried on by another person. The relief is also unavailable to companies involved in dealing in or developing land, to companies involved in exploration and extraction of natural resources or to companies carrying on a profession, providing professional services or holding an office or employment – so called “service companies”.

Finance Act 2011 changes

Section 34 of the Finance Act 2011 provided for the extension of the tax relief for start-up companies to those companies which commenced a trade in 2011. It also modified the existing relief so that the value of the relief is now linked to the amount of Employers’ PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000. Credit is also given for any employers’ PRSI exempted under the Employer Job (PRSI) Incentive Scheme in respect of a company’s employees in determining the amount of corporation tax relief available to the company.

The Finance Act 2011 changes above mean that where the total corporation tax payable by a qualifying start-up company for an accounting period does not exceed €40,000, the aggregate amount of corporation tax referable to income and gains2 of the qualifying trade in that period will be reduced to nil or, if greater, to that aggregate as reduced by the amount of qualifying Employers’ PRSI. Where the total corporation tax payable exceeds €40,000 but does not exceed €60,000, the aggregate amount of corporation tax referable to income and gains¹ of the qualifying trade will be reduced to an amount as calculated in accordance with the original existing marginal relief formula or, if greater, to that aggregate as reduced by the amount of qualifying Employers’ PRSI. For accounting periods of less than 12 months, the various limits are proportionately reduced.

To ensure that the scheme is focussed appropriately on new business activities the section contains a provision which excludes from relief a trade set up by a new company, the activities of which, if carried on a by an associated company of the new company, would form part of an existing trade carried on by that associated company.

The changes introduced in the Finance Act 2011 apply to all qualifying companies for accounting periods beginning on or after 1 January 2011. However, companies which set up and commenced a qualifying trade in 2009 or in 2010 were able to obtain relief on the previous (i.e. pre-Finance Act 2011) basis for profits earned in accounting periods commencing before 2011.

Finance Act 2012 changes

Section 45 of the Finance Act 2012 provided for the extension of the tax relief to start-up companies to those companies which commenced a new trade in 2012, 2013 or 2014.

Finance Act 2013 changes

Section 34 of the Finance Act 2013 provided for the enhancement of the tax relief to start-up companies by allowing any unused relief arising in the first 3 years of trading, due to losses or insufficient profits, to be carried forward for use in subsequent years. The amount of relief is restricted by reference to the total employers’ PRSI contributions for each year in respect of the company’s employees (subject to an overall limit of €40,000 in any one year). The changes made by section 34 of Finance Act 2013 have effect in relation to any ‘first relevant amount’ or ‘second relevant amount’ (see Paragraphs (4A)(b)(i) & (4A)(b)(ii) below) for accounting periods ending on or after 1 January 2013.

Finance Act 2014 changes

Section 39 of the Finance Act 2014 provided provides for the extension of the tax relief for start-up companies to those companies which commenced a new trade in 2015.

Finance Act 2015 changes

Section 29 of the Finance Act 2015 provided for the extension of the tax relief for start-up companies to those companies which commenced a new trade in 2016, 2017 or 2018.

Finance Act 2018 changes

Section 21 of the Finance Act 2018 provided for the extension of the tax relief for startup companies to those companies which commenced a new trade in 2019, 2020 or 2021.

Finance Act 2021 changes

Section 34 of the Finance Act 2021 provided for the extension of the tax relief for startup companies to those companies which commence a new trade in 2022, 2023, 2024, 2025 or 2026. It also provided that the period for which the relief may be claimed was extended from three years to five years for companies that commence a qualifying trade on or after 1 January 2018.

Finance Act 2024 changes

Section 51 of Finance Act 2024 provides for Class S PRSI contributions paid by company directors/owners on emoluments from the company to be considered in determining if the €40,000 maximum threshold on relief is reached (or in determining the amount of marginal relief available where the corporation tax payable is between €40,000 and €60,000). The amount of Class S PRSI remitted by the company to Revenue under the PAYE system during the accounting period can be considered, subject to an annual limit of €1,000 Class S PRSI per individual. This €1,000 limit is proportionately reduced for accounting periods of less than 12 months. This change takes effect for accounting periods commencing on or after 1 January 2025. Finance Act 2024 also updates references in section 486C to the current de minimis aid Regulation in place.

Detail

(1)(a) Subsection (1) contains the definitions used in the section, as follows:

“associated company” is construed in accordance with section 432. Two companies are associated if at that time or within one year previously one company controls the other or both are under common control;

“Commission Regulation (EU) 2023/2831” means Commission Regulation (EU) 2023/2831 of 13 December 20232 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union de minimis aid;

“EEA Agreement” is the agreement signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels at 17 March 1993 between the EU and Norway, Iceland and Liechtenstein;

“EEA state” is a state (other than the State) which is a signatory to the above agreement;

“Employer Job (PRSI) Incentive Scheme” is the scheme provided for in the Social Welfare (Employers’ Pay-Related Social Insurance Exemption Scheme) Regulations 2010 (S.I. No. 294 of 2010);

“Employers’ Pay-Related Social Insurance” is what is generally known as Employers’ PRSI;

“excepted trade” has the meaning assigned to it by section 21A. It means a trade which consists of dealing in or developing land excluding construction operations, working minerals and petroleum activities;

“net chargeable gains” means chargeable gains less allowable losses;

“new company” is a company incorporated in the State, an EEA State or the United Kingdom on or after 14 October 2008;

“qualifying assets” are the relevant assets of the qualifying trade which are disposed of in the first five years (or three years if the qualifying trade commenced before 2018) but not including assets transferred from another group company or assets acquired in the course of a reconstruction or amalgamation;

“qualifying trade” is a trade which is set up and commenced by a new company in the period beginning on 1 January 2009 and ending on 31 December 2026 but does not include a trade which was previously carried on by another person or formed part of another person’s trade or profession, a trade of dealing in or developing land or exploration and extraction of natural resources, a trade consisting of “service company” activities, a trade, the activities of which form part of an undertaking which is referred to in Article 1(1) of Commission Regulation (EU) 2023/2831, or a trade, the activities of which, if carried on by an associated company of the new company, would form part of a trade carried on by that associated company;

“relevant asset” is an asset which is, or an interest in, an asset used for the purposes of the trade other than an asset on the disposal of which no gain accruing would be a chargeable gain or an asset the consideration for the acquisition of which is determined by section 617 or section 631;

“relevant corporation tax” is the corporation tax which would be chargeable for the accounting period before any deduction from that tax under-

• this section,
• sections 239, 241, 440, 441, 644B and 827,
• paragraph 18 of Schedule 32.

The resulting corporation tax is subject to a further two exclusions, namely-

• the exclusion of the corporation tax chargeable on the part of the company’s profits attributable to chargeable gains for that period, and
• the exclusion of the corporation tax on the part of the companies profits which are chargeable to higher rate of corporation tax as specified in section 21A;

“relevant limit” means €5,000 (unless the accounting period is shorter than 12 months in which case this limit is proportionally reduced under subsection (6)),

“relevant period” is the period of five years from the date of set up of the qualifying trade where the qualifying trade is commenced on or after 1 January 2018 and a period of three years from the date of set up of the qualifying trade in all other cases;

“self-employment contribution limit” means €1,000 (unless the accounting period is shorter than 12 months in which case this limit is proportionally reduced under subsection (6));

“Self-employment Pay-Related Social Insurance” means the Class S PRSI contribution payable under section 21(1)(c) of the Social Welfare Consolidation Act 2005 by selfemployed contributors on reckonable emoluments;

“specified contribution” is the lesser of the Employers’ PRSI paid in the accounting period [or which would have been paid if the Employer Job (Incentive Scheme) did not apply] and the relevant limit (€5,000);

“specified self-employment contribution” means the lesser of—

1. the amount of Class S PRSI paid by an individual on emoluments from the company and which the company has remitted to Revenue under the PAYE system in the accounting period, and
2. the self-employment contribution limit (€1,000);

“total contribution” is the lesser of (i) the aggregate of the company’s specified contributions and the specified self-employment contributions for the accounting period and (ii) the lower relevant maximum amount specified in subsection (5) (€40,000);

“total corporation tax” is the corporation tax which would be chargeable for the accounting period before any deduction from that tax under this section, section 239 and section 241;

“trade” means a trade the profits or gains of which are charged to tax under Case I of Schedule D;

(1)(b) The part of a company’s profits attributable to chargeable gains for an accounting period is taken to be the amount of its profits for the accounting period exclusive of any income after any deduction for charges on income, expenses of management, or other amounts which can be deducted from or set against or treated as reducing profits of more than one description (such other amounts would include section 396(2) losses, excess “Case V” capital allowances (section 308(4)), and group relief (section 420)).

(1)(c) In computing a specified contribution for an accounting period of a company which sets up and commences a qualifying trade in 2011, an amount of Employers’ PRSI paid [or which would have been paid if the Employer Job (Incentive Scheme) did not apply] within one month after the end of the accounting period may be treated as Employers’ PRSI paid in the accounting period. Where such an amount is so treated it may not be taken into account into computing a specified contribution for any subsequent accounting period.

Qualifying trade

(2)(a) A “qualifying trade” is a trade which is set up and commenced by a new company at any time in the period beginning on 1/1/2009 and ending on 31/12/2026 but does not include a trade which was previously carried on by another person or formed part of another person’s trade or profession, a trade of dealing in or developing land or exploration and extraction of natural resources, a trade consisting of “service company” activities, a trade the activities of which form part of an undertaking which is referred to in Article 1(1) of Commission Regulation (EU) 2023/2831, or a trade, the activities of which, if carried on by an associated company of the new company, would form part of a trade carried on by that associated company;

Deemed separate trades

(2)(b) Where a trade consists partly of excepted operations and partly of other activities, each trade is treated as a separate trade for the purposes of the section, and a just and reasonable apportionment of receipts and expenses is to be made between the two parts.

Deemed separate accounting period

(3) Where the accounting period for which relief is due falls partly within the relevant period then the period falling within the relevant period is treated as a separate accounting period and relief is granted for that period accordingly.

Exemption from tax

(4)(a) The aggregate corporation tax payable by the company, in so far as it relates to income from a qualifying trade or chargeable gains on the disposal of qualifying assets in relation to that trade in the accounting period, shall be reduced by the lower of the total contribution as defined in subsection (1) [i.e. Employers’ PRSI and Class S PRSI paid in the accounting period] or the corporation tax payable, as calculated above, for the accounting period.

Marginal relief

(4)(b) Where the total corporation tax payable by the company falls between the upper and lower relevant maximum amounts (i.e. between €40,000 and €60,000) then marginal relief is provided.The aggregate amount of corporation tax referable to income and gains of the qualifying trade will be reduced to an amount as calculated in accordance with the original marginal relief formula or, if greater, to that aggregate of corporation tax as reduced by the amount of qualifying Employers’ PRSI and Class S PRSI.

Tax referable to income of qualifying trade

(4)(c) The corporation tax relating to income from the qualifying trade is an amount that bears the same proportion to the relevant corporation tax as the income of the qualifying trade bears to the total income for the accounting period.

Tax referable to chargeable gains from qualifying assets

(4)(d) The corporation tax relating to chargeable gains on the disposal of qualifying assets is an amount that bears the same proportion to the corporation tax on all chargeable gains as the net chargeable gains on qualifying assets disposed of bears to the net chargeable gains on all assets disposed of in the accounting period.

Carry forward of unused relief

(4A)(a) Paragraph (a) defines, for the purposes of subsection (4A), “corporation tax referable to the qualifying trade” for an accounting period, which is the corporation tax referable to the income of the trade for the accounting period and chargeable gains on the disposal of relevant assets used for the trade in the period. It also defines an “accounting period following the relevant period” as an accounting period commencing after the expiry of the initial 3 year or 5 year period of the qualifying trade.

(4A)(b)(i) Where for an accounting period falling within the relevant period (i.e. the initial 3 year or 5 year period of the qualifying trade) the company’s total corporation tax payable for the accounting period is less than €40,000 and the total contribution (employer PRSI and Class S PRSI) exceeds the corporation tax referable to the qualifying trade for the accounting period, then the excess amount (referred to as a ‘first relevant amount’) is available to reduce the corporation tax referable to the qualifying trade for an accounting period following the relevant period.

(4A)(b)(ii) Paragraph (b) relates to companies that are eligible for marginal relief in an accounting period falling within the relevant period. Where the company’s total corporation tax payable for the accounting period is between €40,000 and €60,000 and the total contribution exceeds the corporation tax referable to the qualifying trade for the accounting period, an amount (referred to as a ‘second relevant amount’), calculated in accordance with the formula set out in Paragraph (b)(ii), is available to reduce the corporation tax referable to the qualifying trade for an accounting period following the relevant period. The amount determined by the formula is equivalent to the additional amount of marginal relief that would have been available to the company if the corporation tax referable to the trade were of the same amount as the total contribution (employer PRSI and Class S PRSI).

(4A)(c) The aggregate of all first relevant amounts and second relevant amounts, if any, for accounting periods falling within the relevant period is to be referred to as a ‘specified aggregate’. This essentially provides for all amounts of unused relief in the relevant (i.e. 3 year or 5 year) period to be aggregated together so that this aggregate amount can then be used to reduce corporation tax referable to the qualifying trade in accounting periods following the 3 year or 5 year period, in accordance with Paragraphs (d), (e) and (f).

(4A)(d)(i) Paragraph (d)(i) is subject to paragraphs (e) and (f) and provides that, where a company carries on a qualifying trade for an accounting period following the relevant period, the corporation tax referable to the qualifying trade for that accounting period is to be reduced by the specified aggregate, as defined above. By making this subject to Paragraph (e), the amount of any reduction in the corporation tax referable to the trade shall not exceed the total contribution (employer PRSI and Class S PRSI) of the company for the accounting period.

(4A)(d)(ii) Paragraph (d)((ii) provides for a carry over of any excess, i.e. unused, amount of relief to later accounting periods until the specified aggregate is fully used up. It provides that, where there is a reduction in corporation tax for an accounting period by virtue of subparagraph (i) above and the specified aggregate exceeds the amount of that reduction,

• the corporation tax referable to the qualifying trade for the next accounting period is to be reduced by the amount of that excess, and
• so much of that excess as is not applied to reduce that corporation tax is, in turn, to be applied by the company to reduce the corporation tax referable to the qualifying trade for the succeeding accounting period and so on for each subsequent accounting period.

(4A)(e) The amount by which corporation tax referable to the qualifying trade for an accounting period may be reduced for an accounting period following the relevant period may not exceed the lower of such corporation tax and the total contribution of the company for the accounting period (subject to the overall limit of €40,000 in any one year).

(4A)(f) A company may apply so much of a specified aggregate to reduce corporation tax under this subsection only once.

Chargeable gains

(4)(d) The corporation tax on chargeable gains from qualifying assets is the same proportion of the corporation tax on all disposals as the net gains on qualifying assets is of net gains on all assets disposed of in the accounting period.

Relevant maximum amounts

(5) & (6) The upper and lower relevant maximum amounts for accounting periods of 12 months are €40,000 and €60,000, respectively. For shorter accounting periods, these amounts as well as the relevant limit and the self-employment contribution limit, as defined in subsection (1), are proportionately reduced.

Road transport

(7) The total amount of relief for companies engaged in road transport is restricted to €100,000.

Succeeding to a trade

(8) Where a company claiming relief takes over the activities of another trade, those activities will be treated as a separate trade.

Exclusion from relief calculation of profits charged to higher rate of corporation tax

(9) For the purposes of calculating relief under this section the “total income brought into charge to corporation tax” for the accounting period, calculated in accordance with section 4(4)(b), is reduced by so much of the profits of the company for the accounting period as is charged to the higher rate of corporation tax under section 21A.

Connected persons

(10) Relief under this section will cease where part of the qualifying trade is transferred to a connected person.

Returns

(11) A company is obliged to specify the amount of relief being claimed under this section in its tax return.

Disclosure

(12) This subsection allows the Revenue Commissioners to disclose the amount of relief granted to any company under this section to a public body or local authority where the information is required to ensure that the de minimis state aid ceilings are not exceeded and to assist with European Commission enquiries.

Relevant Date: Finance Act 2024