If we want our entrepreneurial spirit to blossom, we have to help the smaller guys

It would be perilous to ignore the issues facing Irish startups in 2019.

By Marc O'Dwyer CEO, Big Red Cloud

WHILE IT’S IRREFUTABLE that our economy is on the up, it cannot be denied that there is still a myriad of new and established businesses around the country that are struggling.

The investment incentive restrictions on Ireland’s small- and mid-sized businesses are hampering growth and they need to be reviewed this year.

Attention must also be paid in the 12 months ahead to the fact that there is a widespread lack of awareness and under-utilisation of financial assistance that is currently in place for Irish startups.

We need to focus on these issues in 2019 – it would be perilous not to do so given the huge impact they have on our domestic economy. 

A dearth of investment incentives

Figures from to the CSO’s Statistical Yearbook 2018 show that Ireland’s SMEs account for 99.8% of all enterprises in the country and 69% of people engaged in employment.

However, despite their economic contribution, there are currently no incentives in place for business owners to invest in their own businesses; they get no tax back and are not allowed take interest payments.

In this regard, we are way behind other countries, such as the UK, and we are losing highly skilled individuals to that market as a result.

Ireland’s capital gains tax rates are comparably punitive and the lower corporation tax rates are only of use when new businesses start making money, which is too late in many cases, particularly for the much-trumpeted fintech startups.

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While there is some assistance out there for smaller businesses, there is still a huge amount of work to be done to ensure these schemes actually benefit them.

One of the main schemes, the Employment Incentive and Investment Scheme (EIIS), encourages investment in qualifying sectors by offering income tax relief to investors on investments and provides an important source of finance for incubator and early-stage startups. 

However, only 1,711 received this relief in 2016 at a cost of €32 million to the Exchequer, according to Revenue. The average claim for the year stood at €18,408.

This figure has risen steadily over the last five years – from 352 in 2012, to 1,028 in 2013, to 1,359 in 2014 and 1,530 in 2015. But the growth in the numbers is too small – the amount of businesses using this scheme should and could be far greater if it was opened up to more investors.

I would urge the government to take several actions in order to attract more investors such as lifting restrictions on people investing in a family member’s business, enhancing the application process and shortening the processing time.

Record numbers but low take-up

In 2017 an average 61 new companies were formed every day; it was the best year on record for business formation in Ireland, with 22,354 new companies registered.

That’s a 6% increase on 2016 and exceeds a previous record from 1998 when 21,145 new businesses were registered. 

Yet just there were just 80 applications for another key relief – the Startup Refund for Entrepreneurs (SURE) – in 2016.

SURE entitles business owners who were earning a working wage and paying PAYE over the four years before they invested in their business to an income tax refund on their capital funding investment. In other words, it’s a tax refund on earnings up to your investment amount.

In the last five years there were just 373 claims for this refund – this is a small amount considering the number of new companies that were set up in this time.

Many people come to the SME sector after a number of years spent in professional roles, so it’s highly likely that there is a greater number of entrepreneurs who started their own business that are eligible for this relief. I believe people simply don’t know about it or believe that it is too complex to apply for.

The cornerstone of our success

The CSO shows the number of people engaged in SMEs in 2015 reached 968,881 – up from 919,984 in 2014. There has been a steady increase in the number of people working in SMEs in this country since the dip in employment figures in 2012.

Small- and medium-sized businesses generated €32 billion in wages and salaries nationally in 2015, and €4.6 billion in social security contributions. 

This money is integral to a fully functioning economy – it is the money people spend on retail, cars, holidays, not to mention the tax that goes back to the Exchequer. As it stands the average wage paid by SMEs stands at €36,359 – if we want this figure to grow, and we should, we need to help these businesses to grow. 

The figures are not merely numbers on a page –  they point to the importance of these businesses to the Irish economy and lend weight to calls for greater support to be given to Ireland’s entrepreneurs and business owners. It’s as simple as that.

Marc O’Dwyer is the CEO of Big Red Cloud.

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