Budget did not go far enough to incentivise entrepreneurship

Budget fell short of meaningful tax measures to help private businesses deal with rising costs and increased regulation

Employees will see a real improvement in their after-tax income but private businesses need more incentives.

Budget 2025 was focused on alleviating the cost-of-living challenges for many families and the squeezed middle.

To an extent, it also delivered some support for private businesses but it fell short of meaningful tax measures to help private businesses deal with rising costs and increased regulation. 

More pro-growth measures are needed to incentivise entrepreneurship, thereby reducing the country’s dependence on the multinational sector and Budget 2025 did not go far enough in this regard.

With the increase in the higher income tax rate band, the reductions in USC and increased tax credits, employees will see a real improvement in their after-tax income from Budget 2025.

Nicola Quinn: 'The tax system is weighing down businesses, both private companies and multinationals.'

This should help keep employees in the workforce and go some way to helping improve our competitiveness.

The increase in the annual small benefits exemption from €1,000 to €1,500 is a welcome change, as is the increase in the number of benefits that an employer can give in a year from two to five.

As private businesses continue to struggle to recruit and retain key talent, this measure will provide some help to businesses to reward employees tax efficiently.

An Angel Investor capital gains tax relief providing for a reduced rate of tax (16% or 18%) which was announced in Budget 2024 has been enhanced.

The lifetime limit on the relief has been increased from €3m to €10m. While this is a positive step recognising the importance of this source of funding, it would be good to see a commensurate increase in the entrepreneur relief which remains capped at €1m.

Schemes extended

The employment investment incentive (EII), start-up relief for entrepreneurs (SURE), and start-up capital incentive (SCI) have all been extended for a further two years.

In addition, the amount that an investor can claim relief on for EII has been doubled to €1m.

However, the take up of these reliefs remains modest due to the complexity of claiming them. The extension and increase in limits are unlikely to lead to much change in this without a simplification of the reliefs.

In relation to retirement relief, which is very important to private businesses, an increase in the age limit from 65 years to 70 years was announced last year.

This age increase is being maintained. However, the value cap of €10m announced is being modified for disposals to children. Where the assets are retained for 12 years or more, the CGT will be relieved.

We await further details in the Finance Bill but this is an important and necessary change to avoid significant tax costs on passing on family businesses.

R&D tax credit

In relation to the research and development tax credit, it was announced that the first-year payment threshold will be increased from €50,000 to €75,000 which will come as a welcome cash flow help for many private businesses involved in R&D activities.

The new tax exemption on dividends, which is long overdue, will help Irish companies that have subsidiaries abroad. It is hoped the exemption will be extended and improved in the future to make Ireland a more attractive location for investment.

The Vat registration thresholds have been increased to €42,500 for services and €85,000 for goods. These increased thresholds will support smaller businesses and avoid the need for those businesses to deal with the complexity of registering for and operating Vat.

The tax system is weighing down businesses, both private companies and multinationals, with regulation and administration overload like never before. Ireland needs a coherent strategy to enhance our appeal as a location for business. 

We urge the Government to introduce a tax simplification roadmap.

Many SMEs are unable to access our showcase reliefs such as the research & development tax credit and EII because of the enormous complexities associated with claiming the relief for companies and investors. 

Until we address this, tweaking the reliefs will not achieve the desired outcomes.

Nicola Quinn is a tax partner with PWC