ENTREPRENEURS PUT A huge amount of time, effort and cash into getting a new business off the ground. Wouldn’t it be nice if some cash return for this investment was available in the short term?
Under the Startup Refunds for Entrepreneurs (SURE) scheme, immediate tax relief is available to eligible entrepreneurs for the cash investment they make in their business.
SURE is a tax-incentive scheme that provides rebates for investments in new ventures, based on income-tax payments dating back six years. When the conditions are met, a refund of up to €600,000 of income earned over that period, subject to an annual cap of €100,000, is available.
Here’s an example:
Mary invests €100,000 into a company in 2016. Assuming both she and the company meet the criteria, Mary can use her investment to reduce her tax bill for one or more of the previous six years.
Say Mary wants to use her investment against the tax she paid in 2012, when she earned €100,000 and paid tax of €29,532. Through SURE, Mary’s taxable income for 2012 is reduced to nil, giving her a tax refund of the amount of tax she paid that year: €29,532. Nice!
There are strict criteria for both the investor and the new company in order to qualify for SURE. The main qualification criteria for the investor are that they must:
- Be a full-time employee or a full-time director of a new company
- Hold the shares in the company for three years from the date of issue
- Invest cash into the business by purchasing new shares
- Hold at least 15% of the issued share capital of the company for 12 months after the issue of shares, or, if the company is not trading at the time, from the date it starts trading
- Have had mainly PAYE income in the previous four years
In addition, the company in which the investment is being made must:
- Be an unquoted company that was incorporated in the past two years
- Have been incorporated in Ireland or another EEA state
- Be Irish tax resident, or resident in another EU state and carry on its activities in Ireland through a branch or agency
- Carry on a new qualifying trade
- Carry on its business from a fixed place of business in Ireland
- Invest the cash as shares in the company
- Use the cash invested for the benefit of the new business and to create and maintain employment
Companies that have not commenced to trade may still qualify for SURE relief if they carry out certain R&D activity.
While most trading activities are allowed under the relief, there are some notable exceptions, such as dealing in commodities or share futures, making loans, professional services like accountants or solicitors, and developing land.
Entrepreneurs should be mindful that any claim for SURE relief must be made within two years of the end of the year in which the investment is made and shares are issued.
The SURE relief was introduced in late 2011 as the Seed Capital Scheme (SCS). It was intended to encourage individuals currently or recently in employment to start and invest in their own business. However take-up of the relief has been low.
In 2013, more than 15,000 new companies were incorporated yet only 65 used the tax relief that year. While most of these companies will have been set up by individuals who would not have qualified for the relief, it is reasonable to assume that a number of eligible entrepreneurs would have qualified but did not claim the relief.
Undoubtedly, some of the conditions attaching to the relief limit its attractiveness for potential entrepreneur. The relief is aimed at a very specific cohort of individuals, namely PAYE workers. It is not designed to be available to private investors. These limitations on the application of the relief have contributed to its low acceptance.
Also, many entrepreneurs who do qualify for the relief likely don’t know about it. A review of the SCS published in 2014 cited a lack of awareness of the scheme among individuals looking to start a business.
Despite the restrictive qualifying conditions, it is certainly worthwhile for any entrepreneur to check if the relief could apply to them. After all, there aren’t many opportunities for immediate cash returns when starting a business.
Mairead Hennessy is the principal at Taxkey.
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