Tax relief for start-ups

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By Chris Murray

rsz_chris_murrayNo Income Tax for New Business Start Ups

ENTREPRENEURS moving from long-term unemployment to business creation can now avail of income tax relief for two years.

The Start Your Own Business Relief was introduced in Budget 2014 and made provision for a new incentive for people who have been claiming social welfare for over a year to stop claiming and start their own business.

The incentive for newly self-employed people with a qualifying claims history is that they are exempted from income tax on ‘profit’ of up to €40,000 in each of the two years.  Revenue issued a briefing note explaining the scheme, ‘profit’ is not defined, though presumably it can be defined as the surplus between a self employed person’s income and their legitimate expenses.

Qualifying Criteria

You may qualify for this relief if you have been unemployed for twelve months or more, and during that period you were in receipt of certain social welfare payments (e.g. jobseeker’s allowance, jobseeker’s benefit, the one-parent family payment, partial capacity payment, etc.).

Periods of time spent on FÁS training courses and Community Employment schemes, Jobs Initiative or Back To Education Schemes will be treated as part of a period of unemployment.

If you were entitled to jobseeker’s allowance or jobseeker’s benefit immediately before starting on the training course or scheme, then any allowance paid for attending such a course will be treated as if it were jobseeker’s allowance or jobseeker’s benefit. Additional restrictions to be aware of include:

  • The business must be set up between 25 October 2013 and 31 December 2016 by a person that qualifies for the relief.
  • It must be a new business and not a business that is bought, inherited or otherwise acquired.
  • It must be unincorporated, that is, it must not be registered as a company.
Claiming Relief

This relief does not require pre-approval.  You claim this relief by completing the relevant section of your annual Income Tax return form each year.  Revenue’s Online System is an easy way to deal with your tax obligations. ROS even provides you with a calculation of the amount of income tax, USC and PRSI that you owe. If you do not want to use ROS to file your tax return, you can file a paper tax return before 31 August, Revenue will send you a calculation of the amount of tax, USC and PRSI you owe to help you meet your payment obligations.  The Start Your Own Business relief only applies to income tax; it does not extend to ISC and PRSI.       How you calculate the relief depends on when you started your new business.

  • Year 1 – If you start your business in January, your profits are relieved from income tax once they are less than the cap of €40,000.  If you start the venture last year in the year then the cap will be reduced proportionately according to the month you start.
  • Year 2 -Profits are relieved from income tax once they are less than the €40,000 cap.
  • Year 3 – Profits for any part of this year which fall within the first 24 months of business are income tax free once they are less than the cap.

This relief is welcomed by business start ups as it can relieve some of the financial pressure associated with setting up a new business and allow funds to be used for growth and development.

Chris Murray is Practice Manager at Casey & Co.  Casey & Co. offer an extensive range of professional accounting, taxation and advisory services and have a broad range of experience across different sectors such as retail, construction, professionals and non-profit organisations. They also provide personal tax planning and financial services to individuals.

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