18:20, 14 October 2014 by Colette Sexton
Describing SMEs as the “lifeblood” of the Irish economy, Finance Minister Michael Noonan announced several initiatives to support the sector including the retention of the tourism VAT rate, the return of the Seed Capital Scheme and an extension of the Foreign Earnings Deduction scheme.
Restaurants and pubs did as well as could be expected in the budget. The 9 per cent VAT rate was a source of debate this year, especially since SIPTU called for the special reduced rate to be withdrawn. Restaurants and tourism bodies, including people dressed as slices of pizza outside Leinster House today, lobbied hard to keep the rate and Noonan granted them their wish. He added that this VAT reduction could not have come about without the pension levy.
Following the much dramatised €1 increase in wine last year, there was no increase on alcohol in this budget which will be a boost for the pub industry.
Describing micro breweries as a “success story in recent years”, Minister Noonan increased the annual excise relief for micro breweries rom 20,000 to 30,000 hectolitres.
There will be no increase in motor tax, good news for all of the SMEs with goods vehicles on the roads.
A huge issue facing SMEs is the lack of credit available. The minister addressed this with several initiatives, including the Strategic Bank Corporation of Ireland (SBCI), which will be launched at the end of the month. The SBCI will increase the amount of flexible long term loans available to SMEs.
The minister announced that Permanent TSB will start lending to SMEs again soon and the bank will take part in Credit Review Office process. Ulster Bank is also in talks regarding a similar commitment.
The minister also increased the amount of finance that can be raised by a company under the Employment and Investment Incentive to €5 million each year, with a maximum overall limit of €15 million.
The Seed Capital Scheme, a tax refund scheme for employees, unemployed people, or those recently made redundant who are interested in starting their own business, is coming back in the next few months.
The Foreign Earnings Deduction is a tax deduction available to employees who carry out part of the duties of their employment in Brazil, Russia, India, China or South Africa. This has been extended to SMEs operating an export business to a larger range of countries.
The number of days an employee must be abroad has been reduced to 40, and this will include days spent travelling. This will make it easier for smaller companies to send employees on trade missions.
The changes to the income tax rates and levies should make it a little easier for SMEs to incentivise workers, although the extension of the 3 per cent additional USC charge paid at the top rate by self-employed will not be welcomed by the sector.
Speaking about the budget, Mark Fielding, chief executive of ISME, described it as an “uninspiring budget that does little for entrepreneurs”.
He welcomed the changes to USC but he said that “the government could have done much better overall”.
He said that every year, Michael Noonan says that SMEs are the backbone of the economy but then Noonan “ignores the SMEs”.
“They haven’t done anything done for the entrepreneur. The self employed are still paying 3 per cent more than everyone else,” Fielding said.
“How can you talk about creating an entrepreneurial culture if you tax entrepreneurs more than everyone else?”
He added that the retention of the 9 per cent VAT rate for the tourism market was welcome, but it was a “no brainer”, so the SME sector were not surprised by it.
Fielding said that many of the initiatives would only benefit a small number of SMEs.
In relation to the the three-year corporation tax relief for start ups, Fielding said very few start-ups would be eligible to pay corporation tax anyway.
He also said that very few small businesses could afford to have an employee away for 40 days to avail of the Foreign Earnings Deduction.
Fielding said that the failure to cut public sector spending will pose a “major problem” as the country attempts to recover. He said any focus on attempting to reduce public sector inefficiencies would now disappear.
Speaking about the budget, Pat Whelan, owner of Whelan’s Butchers in Clonmel and Dublin, said it was a “fair budget” and there seems to be “something in it for everyone”.
“I think that the government are moving in the right direction.
“We’ve done our time and we’ve paid the fine and now it’s starting to re-energising,” Whelan said.
“From a business perspective, it [the budget incentives] lifts the mood of the people and gives people a better feeling. If people feel better, they are inclined to spend more,” Whelan said.
“It’s always easier to do business when people are feeling positive,” Whelan said.
Maureen Grealish, director at LEAP, a management training company in Galway, said the budget shows that a “cautious confidence in the economy”. She said that the government are “nursing the economy along”.
LEAP offers training to companies in all sectors, and Grealish described the measures as “largely positive”, although she said that “people at the bottom end of the scale probably won’t see much benefit”.
“The fact that there were no further cuts is very positive, particularly to build on consumer confidence,” Grealish said.
She welcomed the retention of the special VAT rate of the tourism sector.
“I know a lot of businesses in tourism who were afraid that an increase in VAT would drive them out of business. It’s very positive that the VAT rate has been retained,” she said.