Priority 3: Equalisation of taxation with the UK
24 March 2017
Helping those sectors most effected by Brexit maintain a competitive edge will be an important factor in overcoming the challenges that Brexit will pose. Potential trade restrictions post Brexit and the more preferable tax treatment of SMEs in the UK raise the possibility of Irish SMEs servicing that market from within the UK itself rather than by exporting from Ireland. As such, the need to level the playing field in relation to the tax offering for indigenous business has never been more urgent.
CGT entrepreneurs relief - The UK market is an important one for Irish SMEs across a number of sectors and for many is their main growth market. The prospect of trade restrictions post Brexit and the preferable tax treatment, mean it will become more attractive for many Irish-based SMEs to expand and service that growth market from within the UK rather than by exporting from Ireland. Changes to the CGT entrepreneurs relief in Budget 2017 provided some boost for growing SMEs but they did not go far enough leaving effective rates more than 15 percentage points higher than for their UK counterparts.
The taxation of stock options - Ibec has a number of recommendations for reform in this area; reform of the operational constraints in revenue-approved schemes to be more flexible to companies reward structures; a reduction of the income tax liability on unapproved schemes to the ordinary rate of tax along with averaging it out over five years; the removal of the USC and PRSI liability from revenue-approved schemes; and the introduction of an enterprise management incentive scheme for smaller firms
Taxation of the self-employed - The lack of an earned income tax credit (EITC)of equivalent value for the self-employed is not supported on any reasonable basis. The Government should complete the rectification of this situation in Budget 2018.
The R&D tax credit and SMEs - The administrative costs associated with the R&D tax credit are too burdensome for smaller firms to participate with the credit. A pro-forma R&D tax credit should be introduced to help smaller firms overcome these costs and engage with the credit.
Personal tax rates Personal tax rates for high skilled workers in Ireland are significantly higher than in the UK. Ireland has the highest marginal effective tax rate (METR) for both average and median earners in the EU at 50.6%. This means that for an average earner the effect of our tax and benefit system will reduce any pay increase they receive by over half. This is over 15 percentage points higher than for a similar worker in the UK. In addition, when compared with workers in the UK more Irish employees face these high METRs. Only 12.4% of UK workers face losing more than 50c from a 1 pay increase; the same figure in Ireland is39%. One of our opportunities in a post-Brexit world will be to attract additional high skilled jobs in financial services or broader FDI. This will be severely curtailed by our income tax system which is now an outlier in the developed world.