The Next Financial Year: Creating a Better Business Environment

The Next Financial Year is the Institute’s annual position paper and public policy blueprint, representing the views and concerns of our 30,000+ members in setting out smart and realistic proposals to make life easier for businesses across the island of Ireland, with a particular focus on indigenous SMEs.

Last year, many of the ideas and proposals that we submitted were adopted by governments in both jurisdictions. In 2022, The Next Financial Year reflects the needs of businesses in the challenging post-Covid world of cost inflation, competition for talent, supply-chain disruption, and geopolitical uncertainty.

The pandemic experience highlighted the resilience of the business community, its ability to adapt and continue to trade. At the same time, government showed how effective it can be when it intervenes swiftly and in the right way. The Covid supports were easily accessible and had the immediate effect of calming the waters of the economy.

An approach sensitive to the needs of business, as well as in the public interest, is required, as we face further tough times. As the Covid supports fall away, insolvencies are likely to increase. Government and its agencies should continue to be assist where possible businesses with a reasonable prospect of survival.

Those aspects of the economy that enabled rapid recovery post pandemic – the emphasis on services, the promotion of high-tech industry and the benefits internationally of operating within English-speaking, common-law jurisdictions – will help businesses through the current crisis. In the 2022 edition of The Next Financial Year we focus on the services sector, and particularly the development of capacity within SMEs. We offer suggestions to improve operation of the regulatory environment, not just to reduce the burden on business but also to promote compliance. We promote a ‘whole of career’ approach to personal taxation, from pragmatic solutions to foster remote working to adequate provision for retirement.

For the next financial year, to create a better environment for businesses as they continue to face economic challenges, disruption and rapid change, examples of our key proposals include:

Ireland

• Supporting hybrid working with a three-day version of the TaxSaver Commuter Ticket.
• Increasing the personal tax allowances available to younger workers to address the challenges they face, particularly in buying their own homes.
• To keep individual landlords in the rental market:
• allow local property tax as a deduction against rental income;
• align deductible expenses with normal trading deductions;
• increase wear and tear rates for fixture and fittings to 25% per annum;
• offer 100% capital allowances for retrofitting properties to improve their energy ratings;
• allow rental losses in a tax year to be used against other income; and
• offer CGT relief on sale of a property with a tenant in situ and/or an undertaking that it will continue as a rental property.
• A Sustaining Enterprise Fund to be made available on a permanent rolling basis for companies impacted by current or future shocks outside their control, with eligibility decided on a case-by-case basis.
• Broadening eligibility for the Covid-19 Business Financial Planning Grant to businesses with five employees or over, and to a broader range of sectors. Making this grant available on a permanent basis and include ongoing review consultations.
• A lower headline capital tax rate of 20% (CGT and CAT) to drive a surge in business and personal transactions, bringing much needed funds into the Exchequer.
• For Revised Entrepreneur Relief, the lifetime cap of €1 million should be significantly increased to €12 million for entrepreneurs who reinvest in a new business.
• Activating measures announced in Budget 2020 to enhance the Key Employee Engagement Programme (KEEP) for SMEs to help them attract and retain talent and expanding KEEP eligibility criteria to include a wider category of businesses.
• Allowing service companies eligibility for the EII Scheme/Start-Up Relief for Entrepreneurs (SURE) and for the Start-up Company Relief and ending the close service company surcharge on the undistributed earnings of service companies.
• A clear, manageable timeline for the introduction of pensions auto-enrolment, accounting the needs of employers, payroll services providers and systems developers.
• Extending the accelerated capital allowances for energy-efficient equipment scheme beyond the current expiration date of 31 December 2023 and giving the scheme a permanent basis in legislation.
• Extending the scope of the R&D Tax Credit to include ‘sustainability innovation’, to support the development of energy-efficient technology and solutions. Offering an enhanced rate of 50% to businesses that undertake sustainability innovation.

Northern Ireland

• A newly formed Executive should hold a public consultation on a lower rate of corporation tax for Northern Ireland which also explores potential mechanisms to mitigate the impact on the region’s block grant.
• Legislating for net-zero targets for Northern Ireland, providing metrics for achieving the necessary reductions in emissions.
• Allowing HMRC scope to waive its preferential status if an insolvent business restructuring is feasible and represents a better return to the Exchequer.
• Developing a secure email enquiry service available to all taxpayers and agents as a main channel of communication with HMRC.
• For major tax policy changes, the UK Government should set out the case for change clearly and early in the consultation process, allow sufficient time to respond properly, and adhere to its own principles of predictability, stability and certainty.
• Increasing the business/landlord turnover threshold for exemption from Making Tax Digital for Income Tax Self-Assessment from £10,000 to £85,000.
• Reviewing Business Asset Disposal Relief, including an evaluation of the impact of the reduced lifetime limit (£1 million from £10 million) on entrepreneurial behaviour.
• Maintaining the current rate of SME R&D tax relief at 130% and increasing the rate of the payable SME R&D tax relief credit to 19%.
• Introducing an enhanced form of tax relief for training costs to encourage additional training investment by businesses to develop new skills in employees.
• Implementing another VAT cut for the hospitality sector to allow businesses to attract customers and offset the impact of increased prices due to not only higher VAT rates but higher costs.
• Accelerating business commitment to net-zero targets by:
• stating the amount of carbon tax paid on receipts;
• re-introducing the 100% enhanced capital allowances regime for products on a refreshed and updated energy technology list;
• introducing a higher rate of enhanced R&D tax relief (150%) for SMEs innovating green technology; and
• allowing enhanced tax relief for investors in renewable energy generation under the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and the Venture Capital Trust Scheme.
• Re-introducing a Business & Financial Planning Grant, this time 100% funded and open to non-Invest NI clients in a broader range of sectors, and established on a permanent basis, particularly for micro and small businesses.