Budget 2022: A Startup Summary by Brian Caulfield

Much like last year, this is another “macro budget”. There were, in my view, relatively few measures that targeted specific sectoral interests. Instead, the focus was very much on housing, climate change and the longer-term budgetary stance. What “give-aways” there were focused on sectors that have been particularly hard hit by the COVID pandemic – aviation and hospitality specifically. Nonetheless, there were some positive changes, which are to be welcomed. As always, the Minister’s speech and documents published today are pretty light on detail. The Finance Bill in a couple of weeks’ time will be crucial in terms of putting flesh on these bones.

In terms of specifics:

1."… the government intends to commit a further €30 million investment to this (innovation equity) fund through Enterprise Ireland; this will be matched by €30 million from the European Investment Fund, subject to Board approval…leading to potential investments of up to €90 million for predominantly seed-stage Irish SMEs.”

BC: In last year’s budget, the government announced a €30m fund from ISIF to support early-stage, innovative Irish companies. That fund hasn’t launched yet but it now appears that the government has been successful in leveraging the fund up to €90m with European Investment Bank funds. It will target mainly seed-stage investment, which is where the gap is currently. €90m is material but the key questions are how this will be deployed and over what time period. Expected to launch early next year.

2.  “I am announcing an extension of the (EIIS) scheme for a further three years and I am also bringing forward a number of important improvements, the effect of which will be to make the scheme more attractive to investors to the ultimate benefit of companies in their start-up years and to the economy through job creation.”

BC: As promised last year, EIIS has been reviewed. The extension of the scheme for a further three years is welcome but there is very little detail at this point on the “improvements…to make the scheme more attractive to investors”. Let’s see what the Finance Bill brings.

3. “I intend to open up the (EIIS) scheme to a wider range of investment funds and I am confident that this measure on its own will result in greater investment in early-stage enterprises.”

BC: This is potentially significant but, again, the devil will be in the Finance Bill detail. This should attract less-experienced and time-poor investors to invest in early-stage ventures through a diversified, managed portfolio of investments. 

4.  “I am also removing the 30 per cent expenditure rule which is unduly restrictive in the context of the self-assessment principles that now apply to the (EIIS) relief.”

BC: Currently, companies must spend 30% of EIIS investment before they can issue a Statement of Qualification to investors to allow them to claim tax relief. In some cases, this could be a period of up to two years. This will simplify things for both companies and investors but doesn’t fundamentally alter the attractiveness of the scheme.

5. “I am announcing an extension of the Section 486C corporation tax relief for certain start-up companies to the end of 2026…start-up companies will now be able to avail of the relief for up to five years, in place of the current three years.”

BC: This is the relief from Corporation Tax for new companies. In addition to extending the relief to 2026, the Minister is extending the period for which the relief applies to 5 years. This isn’t material for most high-growth technology startups as they rarely expect to be profitable in their first five years but may help other SMEs recover from the pandemic.

6. “I am introducing a new tax credit for the digital gaming sector… The relief will support digital games development companies by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a game. The relief will be available at a rate of 32 per cent, on the eligible expenditure of up to a limit of €25 million per project.”

BC: This is, in effect, an equivalent of the R&D tax credit specifically aimed at the gaming sector. However, it appears that it will only be available against Corporation Tax. This was another commitment made in last year’s budget. Good news for games developers.

7. “Government policy is to facilitate and support remote work and, in this regard, I am announcing an income tax deduction amounting to 30 per cent of the cost of vouched expenses for heat, electricity and broadband in respect of those incurred while working from home”.

BC: To be formalised in the Finance Bill, this has been well flagged. Indirect and probably not hugely material relative to employment costs for most start-ups but, as they say, every little helps.

So, overall, some potentially material improvements to EIIS and a €90m fund to support seed-stage high-technology investment. The Finance Bill will hopefully provide the detail needed to really evaluate the impact of the changes. The biggest disappointment is probably that there is still no sign of changes to the R&D Tax Credit that were included in the Finance Act 2019 being commenced. It would be good to see action on that as soon as possible.

As anticipated, there were no changes, good or bad, to CGT or Entrepreneurs’ Relief. I think it’s unlikely that there will be any change there in the lifetime of this government.