Thought Leadership News

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.

CEOs are leveraging M&A for tech-driven growth and market expansion, embodying innovation and sustainability in a dynamic business landscape, explains Fergal McAleavey In the rapidly evolving business landscape of 2024, global CEOs continue to use mergers and acquisitions (M&A) to navigate innovation and transformation across their businesses.  The latest CEO Outlook Pulse Survey from EY shows businesses are engaging in M&A activity with renewed vigour, considering it a strategic support for addressing key priorities. The survey found that acquiring technology, new production capabilities and innovative startups, growing market share and accessing new geographies stood out as the top three strategic drivers for CEOs pursuing M&A. Irish M&A: growth and innovation In Ireland, the M&A landscape is particularly vibrant, with CEOs and investors showing a keen interest in a variety of transaction opportunities, from trade sales to private equity investment to strategic alliances. Ireland's thriving tech sector and business-friendly climate have fuelled a boom in deal-making, outpacing the UK and EU. This is likely to continue as companies pursue innovative technologies and seek to capitalise on the entrepreneurial energy of startups that have scaled. The strategic imperatives for Irish M&A are expected to align with global patterns, emphasising the acquisition of larger market shares, expansion into new markets, and the integration of advanced technology into existing operations. This is especially pertinent for Ireland, given its status as a European tech hub.  Ensuring strategic objectives are met CEOs are also signalling their readiness to streamline their portfolios, shedding assets to address ESG goals and refine their focus for the challenges ahead. Sustainability due diligence is playing an ever-increasing role in M&A transactions to assist buyers and sellers to ensure that those deals are aligned with their own corporate sustainability objectives. This strategic deal-making is not merely a short-term solution but is part of a broader, long-term vision to build resilience and adaptability for an unpredictable future. Irish CEOs' strategy With global funding markets more receptive in 2024, Irish acquirers may find it easier to secure financing for deals and may be the target of larger companies seeking to expand their geographic footprint or product offering. However, they must remain cautious of potential market tightening as political events unfold. For those looking to divest, the market's increasing appetite for acquisitions and the continued resurgence of private equity (PE) could provide favourable conditions. Nonetheless, the timing of PE's full-fledged return to the M&A space remains a little uncertain for large transactions as they await potential interest rate decreases, particularly in the Eurozone and the UK. Irish companies must stay attuned to shifts in monetary policy that could influence the M&A landscape.  To provide corporate sellers with more control over M&A transactions, particularly as a counter-measure to lengthy deal timelines that have become a feature of the M&A market in the last few years, time is well spent by those sellers preparing potential divestment assets for sale, including anticipating issues of particular relevance to likely buyers of those assets and identifying potential regulatory approval requirements that may add to longer deal timelines. Sell-side due diligence of prospective buyers can also be warranted to help flush out any potential roadblocks or delays that may arise from ever-increasing competition law, foreign direct investment and foreign state aid regime requirements.  The M&A momentum for the remaining months of 2024 is characterised by strategic foresight, adaptability, and a commitment to sustainability, as both global and Irish corporate leaders and investors navigate the complexities of a rapidly evolving business world. Fergal McAleavey is Partner of Corporate Finance – Strategy and Transactions at EY

After a decade of little change, the tax regime for research and development in the UK has undergone a ‘credit style’ revamp, writes Liam McHenry  New research and development (R&D) rules for businesses in the UK with an accounting period beginning on or after 1 April 2024 have commenced. These entities are within the remit of the newly merged, research and development expenditure credit (REDC) expenditure scheme – with the exception of “highly R&D-intensive companies”. Companies with over 30 percent of their yearly expenditure qualifying for R&D tax relief can still claim under a restricted version of the SME scheme. Given this high bar, however, it is likely that only small technology start-ups will qualify.  For everyone else, the new rate will provide a benefit worth about 15p per £1 of qualifying expenditure, so not all is lost for those exiting the SME scheme, as a generous tax incentive remains for potential claimants. Reduced complexity? The stated aim of the merged scheme is to reduce complexity for claimants and their advisors. With two schemes remaining post-merger, however, the new scheme is actually more complex than its predecessor.  Subcontracted expenditure had previously been excluded under the RDEC scheme in any meaningful way. Under the new merged scheme, a new system has been put in place with the aim of rewarding whichever party decides to undertake the R&D activity. This adds a new dimension to determining the eligibility of qualifying R&D expenditure insofar as a subcontractor will now need to determine whether they believe their customer knew in advance that a project would require R&D activity. The theory is that this approach will remove the potential for both parties to claim on the same project, but it is easy to see how ambiguity might arise. When agreeing the terms of contracts with customers, claimants must pay additional attention to any clauses relating to intellectual property (IP) generation and whether they indicate that R&D will be required. Taking care at this stage could help claimants identify and preserve their right to claim the corresponding tax relief. Overseas expenditure A restriction on overseas expenditure was also introduced on 1 April 2024. Unless there is a compelling reason why the expenditure could not reasonably have been incurred in the UK, it will not be eligible for inclusion in the claim. However, recognising the unique position of Northern Ireland and its significant integration with the neighbouring Republic of Ireland, claimants can bypass this new restriction. By doing so, they could gain up to a maximum additional benefit of £250,000 every three years. This may require some additional administration, but it is still a welcome reprieve from the restriction, which would have been costly. Increased scrutiny This article offers a summary of the main rule changes coming into effect this month. In reality, there are more of which claimants should be aware. His Majesty's Revenue & Customs (HMRC) has dramatically increased its compliance efforts, with recent revelations from the Public Affairs Committee indicating that upwards of 20 percent of new R&D claims are now under scrutiny. While this fact alone should not be a major concern, it is worth noting that this increased scrutiny often comes with an aggressive stance, beginning with the assumption that R&D claims should be disallowed. The experience of one claimant to another can dramatically vary depending on which caseworker is allocated to the enquiry. Regardless, opening an enquiry can be a prolonged process before a conclusion can be reached. In the event of an unsuccessful enquiry defence, HMRC will be obligated to consider whether any penalties should be levied, depending on whether they determine that the claim was prepared carelessly. In addition, depending on the level of disclosure provided in previous claims made in recent years, HMRC can (and is actively encouraged to) look into these previous claims beyond the normal enquiry window. Planning ahead The implementation of the new R&D tax rules marks a significant shift for businesses heavily reliant on R&D activities for growth and innovation. As businesses adapt to the new regime, strategic planning and collaboration with tax advisors will be essential in maximising the benefits. Liam McHenry is Director of Tax at Grant Thornton