Budget 2021: A Startup Summary by Brian Caulfield

The overall summary is that there is not much to report, but there is hope that an evaluation of the EIIS scheme and the soon to be published National Economic Plan may deliver results.

I would characterise this as a “macro budget”. There were relatively few measures that targeted specific sectoral interests. Instead, huge amounts of (borrowed) money are being thrown at the major macro issues – health, housing, infrastructure and employment supports for the more conventional SME sector. That was always likely to be the case.

In terms of specifics:

1. "The Government will provide an initial €30 million in funding through the Ireland Strategic Investment Fund (ISIF) to support an appropriate and effective scheme and thereby leverage matching funding for early stage seed and growth capital"

BC: The idea here is, apparently, to use the ISIF funds to leverage up and create an overall fund of €100m. That’s not a lot of money, especially in the context of a budget that threw €18B at the economy but it will help. Key questions are who will manage the (hopefully rapid) deployment of the fund and will EU state-aid rules (which remain crazy in the context of high-growth tech companies) be an issue?

2. There will be “an assessment [starting during Q4] of how the Employment and Investment Incentive Scheme (EIIS) can be enhanced in light of the impact of the current crisis”

BC: Good to see that what was described to me as a “sharp” assessment will take place. It needs to be sharp because the crisis in early-stage funding is happening now. It would be great to see this report delivered within the same time-frame as the new National Economic Plan.

3. The government will “will provide for an extension of the tax warehousing scheme to include repayments of Temporary Wage Subsidy Scheme funds owed by employers”

BC: Most startups are, unfortunately, not eligible for TWSS so this will have limited impact but will help some companies.

4. “Knowledge Development Box relief [will be extended] for a further 2 years until end December 2022. The Knowledge Box is an OECD-compliant intellectual property regime that supports businesses in retaining and exploiting assets that have resulted from R&D activities in Ireland”

BC: As this is a Corporation Tax relief, it doesn’t impact most startups but continues support for R&D in Ireland. It would have been good to see changes to the R&D tax credit to pay the full amount of the credit up-front rather than over 3 years.

5. There will be “development of a tax credit for the digital gaming sector, with a view to supporting qualifying activity from January 2022 onwards.”

BC: It looks like this will be akin to an extension of the R&D tax credit to development in the digital gaming sector…let’s wait and see what emerges.

6. “Capital Gains Tax Entrepreneur Relief, I am amending the ordinary shareholding requirement so that an individual who has owned at least 5% of the shares for a continuous period of any three years [in the previous 5 years] qualifies for this relief.”

BC: This is a positive technical change. It means founders are less likely to avoid taking investment because dilution would make them ineligible for the relief. As such, it encourages companies to continue to scale. It should go further, because the “previous 5 years” provision still, to some extent, encourages founders to exit early to avail of the relief.

7. “For the self-employed [and proprietary directors], I will fully implement a Programme for Government commitment to equalise the Earned Income Credit with the PAYE credit by raising it by €150 to €1,650”

BC: This is a matter of fairness. It has been a very long time coming but, finally, the self-employed and proprietary directors will be given the same tax credit as PAYE workers. The penal 3% USC supplement on income above €100k remains, however.

If you would like to learn more about our key asks for this budget and the upcoming National Economic Plan then please visit: www.innovationdrivenrecovery.com